Mercantile Law

MUST READ CASES (MERCANTILE LAW)

SPECIAL COMMERCIAL LAWS

Letters of Credit

1. Reliance Commodities, Inc. Vs. Daewoo Industrial Co. Ltd., 228 SCRA 545 (1993)

Where there was a meeting of the minds between the buyer and the seller regarding the

sale of foundry pig iron to be paid for under a letter of credit, the failure of the buyer to

open the letter of credit did not prevent the perfection of the contract and neither did such

failure extinguish the contract. The opening of the letter of credit was not a condition

precedent for the birth of obligation of the buyer to purchase the foundry pig iron from

the seller. Where the buyer fails to open the letter of credit, as stipulated, the seller or

exporter is entitled to claim damages for such breach. Damages for failure to open the

letter of credit may include the loss of profit which the seller would have reasonably

made had the transaction been carried out

2. Rodzssen Supply Company, Inc. vs. Far East Bank and Trust Company, 357 SCRA

618 (2001)

An issuing bank which paid the beneficiary of an expired letter of credit can recover

payment from the applicant which obtained the goods from the beneficiary to prevent

unjust enrichment.

3. Transfield Philippines, Inc. vs. Luzon Hydro Corp. 443 SCRA 307 (2004)

Where the applicant entered into a Turnkey contract whereby it undertook to construct,

on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station, the

performance of which is secured by a standby letter of credit, the resort to arbitration by

the applicant/ contractor to arbitration to determine if the latter is guilty of delay does not

preclude the beneficiary to draw on the letter of credit upon its issuance of a certification

of default because whether or not the issuance of certification of default amounted to

fraud was not raised in the lower court and the parties did not stipulate that all dispute

regarding delay should first be settled through arbitration before the beneficiary would be

allowed to call upon the letter of credit. If the drawing upon the letter of credit was

wrongful due to the non-existence of the fact of default, the right of the applicant to seek

indemnification for damages it suffered would not normally be foreclosed pursuant to

general principle of law.

4. MWSS vs. Hon. Daway, 432 SCRA 559 (2004)

The stay order issued by the rehabilitation court pursuant to the Interim Rules of

Corporate Rehabilitation does not apply to the beneficiary of the letter of credit against

the banks that issued it because the prohibition on the enforcement of claims against the

debtor, guarantors or sureties of the debtors does not extend to the claims against the

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issuing bank in a letter of credit. Letters of credit are primary obligations and not

accessory contracts and while they are security arrangements, they are not thereby

converted into contracts of guaranty.

5. Metrobank v. Ley Construction and Development Corporation, G.R. No.

185590, December 03, 2014

The legal rights of the Bank and the correlative legal duty of LCDC have not been

sufficiently established by the Bank in view of the failure of the Bank’s evidence to show

the provisions and conditions that govern its legal relationship with LCDC, particularly

the absence of the provisions and conditions supposedly printed at the back of the

Application and Agreement for Commercial Letter of Credit. Even assuming arguendo

that there was no impropriety in the negotiation of the Letter of Credit and the Bank’s

cause of action was simply for the collection of what it paid under said Letter of Credit,

the Bank did not discharge its burden to prove every element of its cause of action against

LCDC.

6. Bank of the Philippine Islands vs. De Reny Fabric Industries, Inc. 35 SCRA 253

(1970)

A buyer who applied for a letter of credit to pay for imported dyestuffs must reimburse

the issuing bank which paid the beneficiary, even if the shipment contained colored

chalks. Banks are not required to investigate if the contract underlying the letter of credit

has been fulfilled or not because in a transaction involving letter of credit, banks deal

only with documents and not with goods.

7. Bank of America vs. Court of Appeals, 228 SCRA 357 (1993)

When the notifying bank entered into a discounting arrangement with the beneficiary, it

acts independently as a negotiating bank. As such, the negotiating bank has a right to

recourse against the issuer bank and until reimbursement is obtained, the beneficiary, as

the drawer of the draft, continues to assume a contingent liability thereon.

8. LBP vs. Monet’s Export and Manufacturing Corp., 452 SCRA 173 (2005)

The issuing bank is not liable for damages even if the shipment did not conform to the

specifications of the applicant. Under the “independence principle”, the obligation of the

issuing bank to pay the beneficiary arises once the latter is able to submit the stipulated

documents under the letter of credit. Hence, the bank is not liable for damages even if

the shipment did not conform to the specifications of the applicant.

9. Philippine National Bank vs. San Miguel Corporation, G.R. No. 186063, January 15,

2014.

Where the trial court rendered a decision finding the buyer solely liable to pay the seller

and omitted by inadvertence to insert in its decision the phrase “without prejudice to the

decision that will be made against the issuing bank,“ the bank can not evade

responsibility based on this ground. The seller which is entitled to draw on the credit line

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of the buyer from a bank against the presentation of sales invoices and official receipts of

the purchases and which obtained a court judgment solely against the buyer even though

the suit is against the bank and the buyer may still enforce the liability of the same bank

under a letter of credit issued to secure the credit line. The so-called "independence

principle" in a letter of credit assures the seller or the beneficiary of prompt payment

independent of any breach of the main contract and precludes the issuing bank from

determining whether the main contract is actually accomplished or not.

10. Transfield Philippines, Inc. vs. Luzon Hydro Corp. 443 SCRA 307 (2004)

The “fraud exception principle” is an exception to the independence principle. The

untruthfulness of a certificate accompanying a demand for payment under a standby letter

of credit may qualify as fraud sufficient to support an injunction against payment. The

remedy for fraudulent abuse is an injunction. However, injunction should not be granted

unless: (a) there is a clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the

independent purpose of the letter of credit and not only fraud under the main agreement;

and (c) irreparable injury might follow if injunction is not granted or the recovery of

damages would be seriously damaged.

11. Feati Bank & Trust Company vs. Court of Appeals, 196 SCRA 576 (1991)

When the letter of credit required the submission of a certification that the

applicant/buyer has approved the goods prior to shipment, the unjust refusal of the

applicant/buyer to issue said certification is not sufficient to compel the bank to pay the

beneficiary thereof. Under the doctrine of strict compliance, the documents tendered must

strictly conform to the terms of the letter of credit, otherwise, the bank which accepts a

faulty tender, acts on its own risks and may not be able to recover from the

applicant/buyer.

Trust Receipts Law

12. Metropolitan Bank & Trust Company vs. Tonda, 338 SCRA 254 (2000)

Compensation shall not be proper when one of the debts consists in civil liability arising

from a penal offense; moreover, any compromise relating to the civil liability does not

automatically extinguish the criminal liability of the accused. The mere failure of the

entrustee to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal

offense that causes prejudice not only to another, but more to the public interest.

13. Lee vs. Court of Appeals, 375 SCRA 579 (2002)

A trust receipt is a security transaction intended to aid in financing importers and retail

dealers who do not have sufficient funds or resources to finance the importation or

purchase of merchandise, and who may not be able to acquire credit except through

utilization, as collateral of the merchandise imported or purchased. Under a letter of

credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with

the trust receipt as a security for the loan; hence, the transaction involves a loan feature

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represented by a letter of credit, and a security feature which is in the covering trust

receipt which secures an indebtedness.

14. Colinares vs. Court of Appeals, 339 SCRA 609 (2000)

The transaction is a simple loan when the goods subject of the agreement had been

purchased and delivered to the supposed entrustee prior to the execution of the trust

receipt agreement. The acquisition of ownership over the goods before the execution of

the trust receipt agreement makes the contract a simple loan, regardless of the

denomination of the contract.

15. Consolidated Bank & Trust Corp. vs. Court of Appeals, 356 SCRA 671 (2001)

Respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale;

it needed the oil for its own operations. More importantly, at no time did title over the oil

pass to petitioner bank, but directly to respondent Corporation to which the oil was

directly delivered long before the trust receipt was executed; thus, the contract executed

by the parties is a simple loan and not a trust receipt agreement.

16. Prudential Bank vs. National Labor Relations Commission, 251 SCRA 412 (1995)

The security interest of the entruster pursuant to the written terms of a trust receipt shall

be valid as against all creditors of the entrustee for the duration of the trust receipt

agreement, including among others, the laborers of the entrustee. The only exception to

the rule is when the properties are in the hands of an innocent purchaser for value and in

good faith.

17. Pilipinas Bank vs. Ong, 387 SCRA 37 (2002)

Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust

receipt to the entruster or to return the goods, if they were not disposed of, shall constitute

the crime of estafa. However, what is being punished by law is the dishonesty and abuse of

confidence in the handling of money or goods to the prejudice of another regardless of

whether the latter is the owner. No dishonesty nor abuse of confidence can be attributed to

the entrustee if the latter failed to comply with its obligation upon maturity of the trust

receipt due to serious liquidity problems and after it was placed under the control of the

management committee created by SEC which took custody of the entrustee’s assets,

including lumbers subject of the trust receipt. Clearly, it was the management committee

which could settle the entrustee’s obligations. The mala prohibita nature of the offense

notwithstanding, the entrustee’s intent to misuse or misappropriate the goods or their

proceeds has not been established based on the circumstances.

Also, the Memorandum of Agreement between the parties did not only reschedule the

entrustee’s debts, but more importantly, it provided principal conditions which are

incompatible with the trust agreement. Hence, the MOA novated and effectively

extinguished the entrustee’s obligation under the trust receipt agreement.

18. Anthony L. Ng vs. People of the Philippines, G.R. No. 173905, April 23, 2010

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When the goods subject of the transaction, such as chemicals and metal plates, were not

intended for sale or resale but for use in the fabrication of steel communication towers,

the agreement cannot be considered a trust receipt transaction but a simple loan. P.D. No.

115 punishes the entrustee for his failure to deliver the price of the sale, or if the goods

are not sold, to return them to the entruster, which, in the present case, is absent and

could not have been complied with; therefore, the liability of the entrustee is only civil in

nature.

19. Land Bank of the Philippines vs. Perez, G.R. No. 166884, June 13, 2012

Under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails

to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster;

or (2) when the entrustee fails to return the goods under trust, if they are not disposed of

in accordance with the terms of the trust receipts. When both parties know that the

entrustee could not have complied with the obligations under the trust receipt without his

fault, as when the goods subject of the agreement were not intended for sale or resale, the

transaction cannot be considered a trust receipt but a simple loan, where the liability is

limited to the payment of the purchase price.

20. Hur Tin Yang vs. People of the Philippines, G.R. No. 195117, August 14, 2013

When both parties entered into an agreement knowing fully well that the return of the

goods subject of the trust receipt is not possible even without any fault on the part of the

trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation

to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the

parties would be the return of the proceeds of the sale transaction. This transaction

becomes a mere loan, where the borrower is obligated to pay the bank the amount spent

for the purchase of the goods.

21. Vintola vs. Insular Bank of Asia and America, 150 SCRA 140 (1987)

A trust receipt transaction is a security agreement, pursuant to which the entruster

acquires a security interest in the goods, which are released to the possession of the

entrustee who binds himself to hold the goods in trust for the entruster and to sell or

otherwise dispose of the goods or to return them in case of non-sale. The return of the

goods to the entruster however, does not relieve the entrustee of the obligation to pay the

loan because the entruster is not the factual owner of the goods and merely holds them as

owner in the artificial concept for the purpose of giving stronger security for the loan.

22. Rosario Textile Mills Corp. vs. Home Bankers Savings and Trust Company, 462

SCRA 88 (2005)

Where the entrustee tendered the return of the articles to the entrustee because they did

not meet its manufacturing requirements but the latter refused to accept and as a

consequence, the entruster stored them in its warehouse which was, however, gutted by

fire, the entrustee’s obligation was not extinguished despite the tender and its invocation

of the principle of res perit domino. Under the Trust Receipts law, the loss of the goods

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under trust receipt regardless of the cause and the period or time it occurred, does not

extinguish the civil obligation of the entrustee. A trust receipt has two features, the loan

and security features. The loan is brought about by the fact that the entruster financed the

importation or purchase of the goods under TR. Until and unless this loan is paid, the

obligation to pay subsists. The principle of res perit domino will not apply if under the

trust receipt, the bank is made to appear as the owner, it was but an artificial expedient,

more of legal fiction than fact, for if it were really so, it could dispose of the goods in any

manner that it wants, which it cannot do, just to give consistency with the purpose of the

trust receipt of giving a stronger security for the loan obtained by the importer. To

consider the bank as the true owner from the inception of the transaction would be to

disregard the loan feature thereof.

23. Ong vs. Court of Appeals, 401 SCRA 649 (2003)

Recognizing the impossibility of imposing the penalty of imprisonment on a corporation,

it was provided that if the entrustee is a corporation, the penalty shall be imposed upon

the directors, officers, employees or other officials or persons responsible for the offense.

However, the person signing the trust receipt for the corporation is not solidarily liable

with the entrustee-corporation for the civil liability arising from the criminal offense

unless he personally bound himself under a separate contract of surety or guaranty.

24. Alfredo Ching vs. Secretary of Justice, 481 SCRA 609 (2006)

The fact that the officer who signed the trust receipt on behalf of the entrustee-

corporation signed in his official capacity without receiving the goods as he had never

taken possession of such nor committing dishonesty and abuse of confidence in

transacting with the entrustor, is immaterial. The law specifically makes the director,

officer, employee or any person responsible criminally liable precisely for the reason that

a corporation, being a juridical entity, cannot be the subject of the penalty of

imprisonment.

25. South City Homes, Inc. vs. BA Finance Corporation, 371 SCRA 603 (2001)

When the entrustee defaults on his obligation, the entruster has the discretion to avail of

remedies which it deems best to protect its right. The law uses the word “may” in

granting to the entruster the right to cancel the trust and take possession of the goods;

hence, the option is given to the entruster.

26. Sarmiento vs. Court of Appeals, 394 SCRA 315 (2002)

A civil case filed by the entruster against the entrustees based on the failure of the latter

to comply with their obligation under the Trust Receipt agreement is proper because this

breach of obligation is separate and distinct from any criminal liability for misuse and/or

misappropriation of goods or proceeds realized from the sale of goods released under the

trust receipts. Being based on an obligation ex contractu and not ex delicto, the civil

action may proceed independently of the criminal proceedings instituted against the

entrustees regardless of the result of the latter.

Mercantile Law

27. Landl & Company vs. Metropolitan Bank, 435 SCRA 639 (2004)

As provided under Section 7, P.D. No. 115, in the event of default of the entrustee, the

entruster may cancel the trust and take possession of the goods subject of the trust or of

the proceeds realized therefrom at any time; the entruster may, not less than five days

after serving or sending of notice of intention to sell, proceed with the sale of the goods at

public or private sale where the entrustee shall receive any surplus but shall be liable to

the entruster for any deficiency. This is by reason of the fact that the initial repossession

by the bank of the goods subject of the trust receipt did not result in the full satisfaction

of the entrustee’s loan obligation.

Banking Laws

28. Teodoro Bañas vs. Asia Pacific Finance Corporation, G.R. No. 128703, October 18,

2000

Transactions involving purchase of receivables at a discount, well within the purview of

investing, reinvesting or trading in securities, which as investment company is authorized

to perform, does not constitute a violation of the General Banking Act. In this case, the

funds supposedly lent have not been shown to have been obtained from the public by way

of deposits, hence, it cannot be said that the investment company was engaged in

banking.

29. PNB v. Sps. Tajonera, G.R. No. 195889, 24 September 2014

Being a banking institution, PNB owes it to the respondents to observe the high standards

of integrity and performance in all its transactions because its business is imbued with

public interest. The high standards are also necessary to ensure public confidence in the

banking system, for, according to Philippine National Bank v. Pike, "[t]he stability of

banks largely depends on the confidence of the people in the honesty and efficiency of

banks." Thus, PNB was duty bound to comply with the terms and stipulations under its

credit agreements with the respondents, specifically the release of the amount of the

additional loan in its entirety, lest it erodes public confidence. Yet, PNB failed in this

regard.

30. Consolidated Bank and Trust Corporation vs. Court of Appeals, G.R. No. 138569,

September 11, 2003

Banks must exercise a high degree of diligence in insuring that they return the passbook

only to the depositor or his authorized representative. The tellers should know that the

rules on savings account provide that any person in possession of the passbook is

presumptively its owner. By the teller giving the passbook to the wrong person, thereby

facilitating unauthorized withdrawals by that person, and for failing to return the

passbook to the authorized representative of the depositor, the Bank presumptively failed

to observe such high degree of diligence in safeguarding the passbook and in insuring its

return to the party authorized to receive the same. However, the Bank’s liability is

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mitigated by the depositor’s contributory negligence in allowing a withdrawal slip signed

by its authorized signatories to fall into the hands of an impostor.

31. Citibank, N.A. vs. Spouses Luis & Carmelita Cabamongan, G.R. No. 146918, May 2,

2006

Allowing the pretermination of the account despite noticing discrepancies in the signature

and photograph of the person claiming to be the depositor, accompanied by the failure to

surrender the original certificate of time deposit, amounted to negligence on the part of

the bank. A bank that fails to exercise the degree of diligence required of it becomes

liable for damages.

32. Comsavings Bank vs. Spouses Danilo and Estrella Capistrano, G.R. No. 170942,

August 28, 2013

A banking institution serving as an originating bank for the Unified Home Lending

Program (UHLP) of the Government owes a duty to observe the highest degree of

diligence and a high standard of integrity and performance in all its transactions with its

clients because its business is imbued with public interest.

33. Land Bank of the Philippines vs. Emmanuel Oñate, G.R. No. 192371, January 15,

2014

As a business affected with public interest and by reason of the nature of its functions, the

bank is under obligation to treat the accounts of its depositors with meticulous care,

always having in mind the fiduciary nature of their relationship. A bank that mismanages

the trust accounts of its client cannot benefit from the inaccuracies of the reports resulting

therefrom; it cannot impute the consequence of its negligence to the client which resulted

to miscrediting of funds.

34. Ileana Macalinao vs. Bank of the Philippine Islands, G.R. No. 175490, September 17,

2009

When the stipulation on the interest rate is void, it is as if there was no express contract

thereon; hence, courts may reduce the interest rate as reason and equity demand, which

would depend on the circumstances of each case. In the present case, the fact that

petitioner made partial payments makes the stipulated penalty charge of 3% per month or

36% per annum, in addition to regular interests, iniquitous and unconscionable.

35. Heirs of Estelita Burgos-Lipat namely: Alan B. Lipat and Alfredo B. Lipat, Jr. vs.

Heirs of Eugenio D. Trinidad namely: Asuncion R. Trinidad, et. al., G.R. No.

185644, March 2, 2010

Section 78 of the General Banking Act requires payment of the amount fixed by the court

in the order of execution, with interest thereon at the rate specified in the mortgage

contract, which shall be applied for the one-year period reckoned from the date of

registration of the certificate of sale. Nonetheless, when the period to exercise the right of

redemption was effectively extended beyond one year, it is only fair and just to require

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the payment of 12% interest per annum beyond the one-year period up to the date of

consignment of the redemption price with the RTC.

36. Advocates for Truth in Lending vs. BSP, G.R. No. 192986, January 15, 2013

The CB Circular No. 905 merely suspended the effectivity of the Usury Law, thereby

allowing the parties to freely stipulate on the rate of interest. Nonetheless, the lifting of

the ceilings for interest rates does not authorize stipulations charging excessive,

unconscionable, and iniquitous interest.

37. Jose C. Go vs. BSP, G.R. No. 178429, October 23, 2009

The law on DOSRI transactions imposes three restrictions: a) the approval requirement,

which refers to the written approval of the majority of the bank’s board of directors,

excluding the director concerned; b) the reportorial requirement, which mandates that the

approval should be entered upon the records of the corporation, and a copy of the entry

be transmitted to the appropriate supervising department; and c) the ceiling requirement,

which limits the amount of credit accommodations to an amount equivalent to the

respective outstanding deposits and book value of the paid-in capital contribution in the

bank. Failure to observe the three requirements constitutes commission of three separate

and different offenses.

38. Hilario P. Soriano vs. People of the Philippines, et. al., G.R. No. 162336, February 1,

2010

The rule on DOSRI transactions covers loans by a bank director or officer which are

made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or

agent of others. The bank officer’s act of indirectly securing a fraudulent loan

application by using the name of an unsuspecting person and without prior compliance

with the requirements of the law would make the officer liable not only for violation of

the law on DOSRI transactions but also for estafa through falsification of commercial

documents

The New Central Bank Act (R.A. No. 7653)

39. Ana Maria Koruga vs. Teodoro Arcenas, Jr., G.R. No. 168332/ G.R. No. 169053,

June 19, 2009

The Monetary Board, is vested with exclusive authority to assess, evaluate and determine

the condition of any bank, and finding such condition to be one of insolvency, or that its

continuance in business would involve a probable loss to its depositors or creditors,

forbid bank or non-bank financial institution to do business in the Philippines; and shall

designate an official of the BSP or other competent person as receiver to immediately

take charge of its assets and liabilities. When the complaint filed by a stockholder of the

bank pertains to the alleged unsafe and unsound banking practices, the authority to

determine the existence of such is with the Monetary Board.

Mercantile Law

40. BSP Monetary Board vs. Hon. Antonio-Valenzuela, G.R. No. 184778, October 2,

2009

The actions of the Monetary Board under Sec. 29 and 30 of RA 7653, which pertain to

the power to appoint a conservator or a receiver for a bank, may not be restrained or set

aside by the court except on petition for certiorari on the ground that the action taken was

in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or

excess of jurisdiction. Hence, the issuance by the RTC of writs of preliminary injunction

is an unwarranted interference with the powers of the Monetary Board.

41. Central Bank of the Philippines vs. Court of Appeals, G.R. No. 88353, May 8, 1992

The following requisites must be present before the order of conservatorship may be set

aside by a court: 1) The appropriate pleading must be filed by the stockholders of record

representing the majority of the capital stock of the bank in the proper court; 2) Said

pleading must be filed within ten (10) days from receipt of notice by said majority

stockholders of the order placing the bank under conservatorship; and 3) There must be

convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith.

42. Philippine International Bank vs. Court of Appeals, G.R. No. 115849, January 24,

1996

The authority of the conservator under the Central Bank Law is limited to acts of

administration; the conservator merely takes the place of the bank’s board of directors

and as such, the former cannot perform acts the latter cannot do. Hence, the conservator

cannot revoke a contract of sale of a property acquired by the bank entered into by a bank

officer even though the price agreed upon is no longer reflective of the fair market value

of the property by reason of its appreciation of value over time.

43. Rural Bank of San Miguel vs. Monetary Board, G.R. No. 150886, February 16, 2007

Under R.A. No. 265, an examination is required to be made before the Monetary Board

could issue a closure order; however, under R.A. No. 7653, prior notice and hearing are

no longer required and a report made by the head of the supervising and examining

department suffices for a bank to be closed and placed under receivership. The purpose

of the law is to make the closure of the bank summary and expeditious for the protection

of the public interest

44. Abacus Real Estate Development Center, Inc. vs. Manila Banking Corp., G.R. No.

162270, April 06, 2005

When a bank is placed under receivership, the appointed receiver is tasked to take charge

of the bank’s assets and properties and the scope of the receiver’s power is limited to acts

of administration. The receiver’s act of approving the exclusive option to purchase

granted by the bank’s president is beyond the authority of the former and as such, it

cannot be considered a valid approval.

Mercantile Law

45. Alfeo D. Vivas, vs. Monetary Board and PDIC, G.R. No. 191424, August 7, 2013

The Monetary Board may forbid a bank from doing business and place it under

receivership without prior notice and hearing it the MB finds that a bank: (a) is unable to

pay its liabilities as they become due in the ordinary course of business; (b) has

insufficient realizable assets to meet liabilities; (c) cannot continue in business without

involving probable losses to its depositors and creditors; and (d) has willfully violated a

cease and desist order of the Monetary Board for acts or transactions which are

considered unsafe and unsound banking practices and other acts or transactions

constituting fraud or dissipation of the assets of the institution.

46. ]Jerry Ong vs. Court of Appeals, G.R. No. 112830, February 1, 1996

The court shall have jurisdiction in the same proceedings to adjudicate disputed claims

against the bank and enforce individual liabilities of the stockholders and do all that is

necessary to preserve the assets of such institution and to implement the liquidation plan

approved by the Monetary Board. Hence, all claims against the insolvent bank should be

filed in the liquidation proceeding and it is not necessary that a claim be initially disputed

in a court or agency before it is filed with the liquidation court.

47. Domingo Manalo vs. Court of Appeals, G.R. No. 141297, October 8, 2001

The rule that all claims against a bank must be filed in the liquidation proceedings does

not apply to actions filed by the bank itself for the preservation of its assets and

protection of its property, such as a petition for the issuance of a Writ of Possession

instituted by the bank itself. Moreover, a bank ordered closed by the Monetary Board

retains its personality which can sue and be sued through its liquidator.

48. Leticia G. Miranda vs. Philippine Deposit Insurance Corporation, G.R. No. 169334,

September 8, 2006

As a rule, bank deposits are not preferred credits. However, when the deposits covered

by a cashier’s check were purchased from a bank at the time when it was already

insolvent, the purchase is entitled to preference in the assets of the bank upon its

liquidation by reason of the fraud in the transaction.

49. Oñate vs. Abrogar, G.R. No. 107303, February 23, 1995

In a case where the money paid by an insurance company for treasury bills was deposited

in a bank account, the examination of the said bank account is prohibited under R.A. No.

1405 by reason of the fact that the subject matter of the action filed by the insurance

company against the seller of the treasury bills is the failure to deliver the treasury bills,

not the money deposited.

50. Intengan vs. Court of Appeals, G.R. No. 128996, February 15, 2002

When the account subject of the complaint is in the foreign currency, such complaint

filed for violation of R.A. No. 1405 did not toll the running of the prescriptive period to

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file the appropriate complaint for violation of R.A. No. 6426. The Law on Secrecy of

Bank Deposits (R.A. No. 1405) covers deposits under the Philippine Currency; a separate

and distinct law governs deposits under the foreign currency (R.A. No. 6426).

51. Ejercito vs. Sandiganbayan, G.R. Nos. 157294-95, November 30, 2006

The “deposits” covered by the law on secrecy of bank deposits should not be limited to

those creating a creditor-debtor relationship; the law must be broad enough to include

“deposits of whatever nature” which banks may use for authorized loans to third persons.

R.A. No. 1405 extends to funds invested such as those placed in a trust account which the

bank may use for loans and similar transactions.

52. Mellon Bank, N.A. vs. Magsino, G.R. No. 71479, October 18, 1990

One of the exceptions under R.A. No. 1405 is when a court order is issued for the

disclosure of bank deposits in a case where the money deposited is the subject matter of

litigation. When the subject matter is the money the bank transmitted by mistake, an

inquiry to the whereabouts of the amount extends to whatever concealed by being held or

recorded in the name of the persons other than the one responsible for the illegal

acquisition.

53. Marquez vs. Desierto, G.R. No. 135882, June 27, 2001

In a case for violation of the Anti-Graft and Corrupt Practices Act, the Ombudsman can

only examine bank accounts upon compliance with the following requisites: there is a

pending case before a court of competent jurisdiction; the account must be clearly

identified, and the inspection must be limited to the subject matter of the pending case;

the bank personnel and the account holder must be informed of the examination; and such

examination must be limited to the account identified in the pending case. If there is no

pending case yet but only an investigation by the Ombudsman, any order for the

examination of the bank account is premature.

54. PCIB vs. Court of Appeals, G.R. No. 84526, January 28, 1991)

The law on secrecy of bank deposits cannot be used to preclude the bank deposits from

being garnished for the satisfaction of a judgment. There is no violation of R.A. No.

1405 because the disclosure is purely incidental to the execution process and it was not

the intention of the legislature to place bank deposits beyond the reach of the judgment

creditor.

55. Salvacion vs. Central Bank of the Philippines, G.R. No. 94723, August 21, 1997)

A foreign transient who raped a minor, escaped and was made liable for damages to the

victim cannot invoke the exemption from court process of foreign currency deposits

under R.A. No. 6426. The garnishment of his foreign currency deposit should be allowed

by reason of equity and to prevent injustice; moreover, the purpose of the law is to

encourage foreign currency deposits and not to benefit a wrongdoer.

Mercantile Law

56. Republic of the Philippines vs. Glasgow Credit and Collection Services, Inc., G.R.

No. 170281, January 18, 2008

Since the account of Glasgow in CSBI was (1) covered by several suspicious transaction

reports and (2) placed under the control of the trial court upon the issuance of the writ of

preliminary injunction, the conditions provided in Section 12(a) of RA 9160, as amended,

were satisfied. A criminal conviction for an unlawful activity is not a prerequisite for the

institution of a civil forfeiture proceeding. A finding of guilt for an unlawful activity is

not an essential element of civil forfeiture.

57. Republic of the Philippines vs. Cabrini Green & Ross, Inc., G.R. No. 154522, May 5,

2006

The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the

Court of Appeals over the extension of freeze orders. It is solely the CA which has the

authority to issue a freeze order as well as to extend its effectivity; it also has the

exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC

vis-à-vis accounts and deposits related to money-laundering activities

58. Ret. Lt. Gen. Jacinto Ligot, et. al. vs. Republic of the Philippines, G.R. No. 176944,

March 6, 2013

The primary objective of a freeze order is to temporarily preserve monetary instruments

or property that are in any way related to an unlawful activity or money laundering, by

preventing the owner from utilizing them during the duration of the freeze order. The

effectivity of the freeze order was limited to a period not exceeding six months, which

may be extended by the CA should it become completely necessary. Nonetheless, when

the Republic has not offered any explanation why it took six years before a civil

forfeiture case was filed in court, it can only be concluded that the continued extension of

the freeze order beyond the six-month period violated the party’s right to due process.

Negotiable Instruments Law

59. Caltex (Philippines), Inc. vs. Court of Appeals and Security Bank and Trust

Company, G.R. No. 97753, August 10, 1992

When the documents provide that the amounts deposited shall be repayable to the

depositor, such instrument is negotiable because it is payable to the "bearer." The

documents do not say that the depositor is Angel de la Cruz and that the amounts

deposited are repayable specifically to him, but the amounts are to be repayable to the

bearer of the documents or, for that matter, whosoever may be the bearer at the time of

presentment.

60. Traders Royal Bank vs. Court of Appeals, Filriters Guaranty Assurance

Corporation and Central Bank of the Philippines, G.R. No. 93397, March 3, 1997

Mercantile Law

The language of negotiability which characterizes a negotiable paper as a credit

instrument is its freedom to circulate as a substitute for money. The freedom of

negotiability is the touchstone relating to the protection of holders in due course and is

the foundation for the protection which the law thrown around a holder in due course.

This freedom in negotiability is totally absent in a certificate of indebtedness which

merely acknowledges to pay a sum of money to a specified persons or entity. Since a

certificate of indebtedness which is not payable to order or bearer but is payable to a

specific person is not negotiable, the assignee takes it subject to the defect in the title of

the assignor. Thus, when the person who signed the deed of assignment was not

authorized by the board of directors, the assignor had no title to convey to the assignee.

61. Hongkong & Shanghai Banking Corporation v. CIR, G.R. Nos. 166018 & 167728,

04 June 2014

The electronic messages are not signed by the investor-clients as supposed drawers of a

bill of exchange; they do not contain an unconditional order to pay a sum certain in

money as the payment is supposed to come from a specific fund or account of the

investor-clients; and, they are not payable to order or bearer but to a specifically

designated third party. Thus, the electronic messages are not bills of exchange. As there

was no bill of exchange or order for the payment drawn abroad and made payable here in

the Philippines, there could have been no acceptance or payment that will trigger the

imposition of the DST under Section 181 of the Tax Code.

62. Philippine National Bank vs. Erlando T. Rodriguez and Norma Rodriguez, G.R. No.

170325, September 26, 2008

Under the fictitious payee rule, a check made expressly payable to a non-fictitious and

existing person is not necessarily an order instrument if the payee is not the intended

recipient of the proceeds of the check. There is, however, a commercial bad faith

exception to this rule which provides that a showing of commercial bad faith on the part

of the drawee bank, or any transferee of the check for that matter, will work to strip it of

this defense.

63. People Of The Philippines Vs. Gilbert Reyes Wagas. G.R. No. 157943, September 4,

2013

Under the Negotiable Instruments Law, a check made payable to cash is payable to the

bearer and could be negotiated by mere delivery without the need of an indorsement.

However, the drawer of the post-dated check cannot be liable for estafa to the person who

did not acquire the instrument directly from drawer but through negotiation of another by

mere delivery. This is because the drawer did not use the check to defraud the

holder/private complainant.

64. Prudential Bank v. Commissioner of Internal Revenue (CIR) G.R. No. 180390, July

27, 2011

Mercantile Law

A certificate of deposit is defined as a written acknowledgement by a bank of the receipt

of a sum of money on deposit which the bank promise to pay to the depositor or the order

of the depositor or to some other person or his order whereby the relation of debtor and

creditor between the bank and the depositor is created. A document to be considered a

certificate of deposit need not be in a specific form. Thus, a passbook of an interest-

earning deposit account issued by a bank is a certificate of deposit drawing interest

because it is considered a written acknowledgment by a bank that it has accepted a

deposit of a sum of money from a depositor. Thus, it is subject to documentary stamp tax.

65. Ting Ting Pua vs. Spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, G.R.

No. 198660, October 23, 2013

The 17 original checks, completed and delivered to petitioner, are sufficient by

themselves to prove the existence of the loan obligation of the respondents to petitioner.

Sec. 16 of the NIL provides that when an instrument is no longer in the possession of the

person who signed it and it is complete in its terms "a valid and intentional delivery by

him is presumed until the contrary is proved.

66. Patrimonio v. Gutierrez, G.R. No. 187769, 04 June 2014

While under the law, the one in possession had a prima facie authority to complete the

check, such prima facie authority does not extend to its use (i.e., subsequent transfer or

negotiation) once the check is completed. In other words, only the authority to complete

the check is presumed. Further, the law used the term "prima facie" to underscore the fact

that the authority which the law accords to a holder is a presumption juris tantum only;

hence, subject to contrary proof. Thus, evidence that there was no authority or that the

authority granted has been exceeded may be presented by the maker in order to avoid

liability under the instrument.

In the present case, no evidence is on record that the one to whom the check was

delivered ever secured prior approval from the petitioner to fill up the blank or to use the

check. In his testimony, petitioner asserted that he never authorized nor approved the

filling up of the blank checks.

67. San Miguel Corporation vs. Puzon, Jr. G.R. No. 167567, 22 September 2010

If the post-dated check was given to the payee in payment of an obligation, the purpose

of giving effect to the instrument is evident, thus title or ownership the check was

transferred to the payee. However, if the PDC was not given as payment, then there was

no intent to give effect to the instrument and ownership was not transferred. The evidence

proves that the check was accepted, not as payment, but in accordance with the policy of

the payee to cover the transaction (purchase of beer products) and in the meantime the

drawer was to pay for the transaction by some other means other than the check. This

being so, title to the check did not transfer to the payee; it remained with the drawer. The

second element of the felony of theft was therefore not established. Hence, there is no

probable cause for theft.

Mercantile Law

68. Equitable Banking Corporation vs Special Steel Products, June 13, 2012

The fact that a person, other than the named payee of the crossed check, was presenting it

for deposit should have put the bank on guard. It should have verified if the payee

authorized the holder to present the same in its behalf or indorsed it to him. The bank’s

reliance on the holder’s assurance that he had good title to the three checks constitutes

gross negligence even though the holder was related to the majority stockholder of the

payee. While the check was not delivered to the payee, the suit may still prosper because

the payee did not assert a right based on the undelivered check but on quasi-delict.

69. Westmont Bank (formerly Associated Banking Corp.) vs. Eugene Ong, G.R. No.

132560, January 30, 2002

As a general rule, a bank or corporation who has obtained possession of a check upon an

unauthorized or forged indorsement of the payee’s signature and who collects the amount

of the check from the drawee, is liable for the proceeds thereof to the payee or other

owner, notwithstanding that the amount has been paid to the person from whom the

check was obtained. The theory of the rule is that the possession of the check on the

forged or unauthorized indorsement is wrongful and when the money had been collected

on the check, the proceeds are held for the rightful owners who may recover them. The

payee ought to be allowed to recover directly from the collecting bank, regardless of

whether the check was delivered to the payee or not.

70. Ramon K. Ilusorio vs. Hon. Court of Appeals, G.R. No. 139130, November 27, 2002

It is a rule that when a signature is forged or made without the authority of the person

whose signature it purports to be, the check is wholly inoperative and no right to retain

the instrument, or to give a discharge therefor, or to enforce payment thereof against any

party, can be acquired through or under such signature. However, the rule does provide

for an exception, namely: "unless the party against whom it is sought to enforce such

right is precluded from setting up the forgery or want of authority." In the instant case, it

is the exception that applies as the petitioner is precluded from setting up the forgery,

assuming there is forgery, due to his own negligence in entrusting to his secretary his

credit cards and checkbook including the verification of his statements of account.

71. Philippine National Bank vs. FF Cruz and Company, G.R. No. 173259, July 25, 2011

As between a bank and its depositor, where the bank’s negligence is the proximate cause

of the loss and the depositor is guilty of contributory negligence, the greater proportion of

the loss shall be borne by the bank. The bank was negligent because it did not properly

verify the genuineness of the signatures in the applications for manager’s checks while

the depositor was negligent because it clothed its accountant/bookkeeper with apparent

authority to transact business with the Bank and it did not examine its monthly statement

of account and report the discrepancy to the Bank. The court allocated the damages

between the bank and the depositor on a 60-40 ratio.

Mercantile Law

72. Philippine Commercial International Bank vs. Balmaceda,G.R. No. 158143,

September 21, 2011

While its manager forged the signature of the authorized signatories of clients in the

application for manager’s checks and forged the signatures of the payees thereof, the

drawee bank also failed to exercise the highest degree of diligence required of banks in

the case at bar. It allowed its manager to encash the Manager’s checks that were plainly

crossed checks. A crossed check is one where two parallel lines are drawn across its face

or across its corner. Based on jurisprudence, the crossing of a check has the following

effects: (a) the check may not be encashed but only deposited in the bank; (b) the check

may be negotiated only once — to the one who has an account with the bank; and (c) the

act of crossing the check serves as a warning to the holder that the check has been issued

for a definite purpose and he must inquire if he received the check pursuant to this

purpose; otherwise, he is not a holder in due course. In other words, the crossing of a

check is a warning that the check should be deposited only in the account of the payee.

When a check is crossed, it is the duty of the collecting bank to ascertain that the check is

only deposited to the payee’s account.

73. Town Saving and Loan Bank, Inc. vs. Court of Appeals, 223 SCRA 459, 1993

When a married couple signed a promissory note in favor of a bank to enable the sister of

the husband to obtain a loan, they are considered as accommodation parties who are

liable for the payment of said loan.

74. Gonzales vs Phillippine Commercial and International Bank, GR No. 180257,

February 23, 2011

While a maker who signed a promissory note for the benefit of his co-maker (who

received the loan proceeds) is considered an accommodation party, he is, nevertheless,

entitled to a written notice on the default and the outstanding obligation of the party

accommodated. There being no such written notice, the Bank is grossly negligent in

terminating the credit line of the accommodation party for the unpaid interest dues from

the loans of the party accommodated and in dishonoring a check drawn against such

credit line.

75. Juanita Salas vs. Hon. Court of Appeals and First Finance & Leasing Corporation,

G.R. No. 76788 January 22, 1990

A holder in due course holds the instrument free from any defect of title of prior parties,

and free from defenses available to prior parties among themselves, and may enforce

payment of the instrument for the full amount thereof. This being so, petitioner cannot set

up against respondent the defense of nullity of the contract of sale between her and VMS.

76. Atrium Management Corporation vs. Court of Appeals, et al., G.R. No. 109491,

February 28, 2001

Mercantile Law

Where cashier’s checks were issued merely as financial assistance to the payee with

instruction that the checks were strictly endorsed for payee’s account only and not to be

further negotiated, the party in whose favor the checks were negotiated could not qualify

as a holder in due course. However, it does not follow as a legal proposition that simply

because the holder was not a holder in due course for having taken the checks with notice

that the same were for deposit only to the account of another that it was altogether

precluded from recovering on the instrument. The Negotiable Instruments Law does not

provide that a holder not in due course cannot recover on the instrument. The

disadvantage of the holder in not being a holder in due course is that the instrument is

subject to defense as if it were non-negotiable. One such defense is absence or failure of

consideration (the defense raised by the drawer since the checks had no consideration and

was issued merely as a form of financial assistance to the payee).

77. Samsung Construction Company Philippines, Inc. vs. Far East Bank and Trust

Company and Court Of Appeals, G.R. NO. 129015, August 13, 2004

If a bank pays a forged check, it must be considered as paying out of its funds and cannot

charge the amount so paid to the account of the depositor. A bank is liable, irrespective of

its good faith, in paying a forged check.

78. Maria Tuazon vs. Heirs of Bartolome Ramos, 463 SCRA 408, 2005

After an instrument is dishonored by non-payment, indorsers cease to be merely

secondarily liable; they become principal debtors whose liability becomes identical to

that of the original obligor.The holder of the negotiable instrument need not even proceed

against the drawer before suing the indorser.

79. Allied Banking Corporation vs. Bank of the Philippine Islands, GR. 188363,

February 27, 2013

The collecting bank which accepted a post-dated check for deposit and sent it for clearing

and the drawee bank which cleared and honored the check are both liable to the drawer

for the entire face value of the check.

80. Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641 (2000)

In depositing the check in his name, the depositor did not become the out-right owner of

the amount stated therein. By depositing the check with the bank, the depositor was, in a

way, merely designating the bank as the collecting bank. This is in consonance with the

rule that a negotiable instrument, such as a check, whether a manager’s check or ordinary

check, is not legal tender. As such, after receiving the deposit, under its own rules, the

bank shall credit the amount to the depositor’s account or infuse value thereon only after

the drawee bank shall have paid the amount of the check or the check has been cleared

for deposit. The depositor’s contention that after the lapse of the 35-day period the

amount of a deposited check could be withdrawn even in the absence of a clearance

thereon, otherwise it could take a long time before a depositor could make a withdrawal

Mercantile Law

is untenable. Said practice amounts to a disregard of the clearance requirement of the

banking system.

81. Anamer Salazar vs. JY Brothers Marketing Corporation, GR no. 171998, October

20, 2010

While Section 119 of the Negotiable Instruments Law in relation to Article 1231 of the

Civil Code provides that one of the modes of discharging a negotiable instrument is by

any other act which will discharge a simple contract for the payment of money, such as

novation, the acceptance by the holder of another check which replaced the dishonored

bank check did not result to novation. There are only two ways which indicate the

presence of novation and thereby produce the effect of extinguishing an obligation by

another which substitutes the same. First, novation must be explicitly stated and declared

in unequivocal terms as novation is never presumed. Secondly, the old and the new

obligations must be incompatible on every point. In the instant case, there was no

express agreement that the holder’s acceptance of the replacement check will discharge

the drawer and endorser from liability. Neither is there incompatibility because both

checks were given precisely to terminate a single obligation arising from the same

transaction.

82. The International Corporate Bank, Inc. vs. Court of Appeals and Philippine

National Bank, G.R. NO. 129910, September 5, 2006

Alterations of the serial numbers do not constitute material alterations on the checks.

Since there were no material alterations on the checks, respondent as drawee bank has no

right to dishonor them and return them to petitioner, the collecting bank.

Insurance Law

83. Philippine Health Care Providers, Inc., vs. Commissioner of Internal Revenue, G.R.

No. 167330, September 18, 2009

One test in order to determine whether one is engaged in insurance business is whether

the assumption of risk and indemnification of loss (which are elements of an insurance

business) are the principal object and purpose of the organization or whether they are

merely incidental to its business. If these are the principal objectives, the business is that

of insurance. But if they are merely incidental and service is the principal purpose, then

the business is not insurance. In this case, Health Maintenance Organizations (HMOs) are

not insurance business

84. Fortune Medicare Inc. vs Amorin. G.R. No. 195872, March 12, 2014

For purposes of determining the liability of a health care provider to its members, a health

care agreement is in the nature of non-life insurance, which is primarily a contract of

indemnity. Once the member incurs hospital, medical or any other expense arising from

sickness, injury or other stipulated contingent, the health care provider must pay for the

Mercantile Law

same to the extent agreed upon under the contract. Limitations as to liability must be

distinctly specified and clearly reflected in the extent of coverage which the company

voluntary assume, otherwise, any ambiguity arising therein shall be construed in favor of

the member. Being a contract of adhesion, the terms of an insurance contract are to be

construed strictly against the party which prepared the contract - the insurer. This is

equally applicable to Health Care Agreements. The phraseology used in medical or

hospital service contracts, such as “standard charges“ must be liberally construed in

favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations

the construction conferring coverage is to be adopted, and exclusionary clauses of

doubtful import should be strictly construed against the provider. Thus, if the member,

while on vacation, underwent a procedure in the USA, the standard charges referred to in

the contract should mean standard charges in USA and not the cost had the procedure

been conducted in the Philippines.

85. Philamcare Health System vs. Court of Appeals, 379 SCRA 356, 2002

Every person has an insurable interest in the life and health of: 1.) Himself, or his spouse

and of his children; 2.) Any person: (a) on whom he depends wholly or in part for

education or support, or in whom he has a pecuniary interest; (b) under legal obligation to

him for the payment of money, respecting property or service, of which death or illness

might delay or prevent the performance; and (c) upon whom whose life any estate or

interest vested in him depends.

86. Alpha Insurance and Surety Co. vs. Castor, GR No. 198174, September 2, 2013

Contracts of insurance, like other contracts, are to be construed according to the sense

and meaning of the terms which the parties themselves have used. If such terms are clear

and unambiguous, they must be taken and understood in their plain, ordinary and popular

sense. Accordingly, in interpreting the exclusions in an insurance contract, the terms used

specifying the excluded classes therein are to be given their meaning as understood in

common speech. A contract of insurance is a contract of adhesion. So, when the terms of

the insurance contract contain limitations on liability, courts should construe them in such

a way as to preclude the insurer from non-compliance with his obligation.

87. Heirs Of Loreto c. Maramag vs. Eva Verna De Guzman Maramag, et al., G.R. No.

181132, June 5, 2009

The only persons entitled to claim the insurance proceeds are either the insured, if still

alive; or the beneficiary, if the insured is already deceased, upon the maturation of the

policy. The exception to this rule is a situation where the insurance contract was intended

to benefit third persons who are not parties to the same in the form of favorable

stipulations or indemnity. In such a case, third parties may directly sue and claim from

the insurer. Because no legal proscription exists in naming as beneficiaries the children of

illicit relationships by the insured, the shares of Eva in the insurance proceeds, whether

forfeited by the court in view of the prohibition on donations under Article 739 of the

Civil Code or by the insurers themselves for reasons based on the insurance contracts,

Mercantile Law

must be awarded to the said illegitimate children, the designated beneficiaries, to the

exclusion of heirs.

88. Country Bankers Insurance Corporation vs. Antonio Lagman, G.R. No. 165487,

July 13, 2011

Section 177 of the Insurance Code states that the surety is entitled to payment of the

premium as soon as the contract of suretyship or bond is perfected and delivered to the

obligor. No contract of suretyship or bonding shall be valid and binding unless and until

the premium therefor has been paid, except where the obligee has accepted the bond, in

which case the bond becomes valid and enforceable irrespective of whether or not the

premium has been paid by the obligor to the surety. A continuing bond, as in this case

where there is no fixed expiration date, may be cancelled only by the obligee, which is

the NFA, by the Insurance Commissioner, and by the court. By law and by the specific

contract involved in this case, the effectivity of the bond required for the obtention of a

license to engage in the business of receiving rice for storage is determined not alone by

the payment of premiums but principally by the Administrator of the NFA.

89. First Lepanto-Taisho Insurance Corporation vs Chevron Philippines, GR No.

177839, January 18, 2012

The extent of the surety’s liability is determined by the language of the suretyship

contract or bond itself. It can not be extended by implications beyond the terms of the

contract. Having accepted the bond, the creditor is bound by the recital in the surety bond

that the terms and conditions of its distributorship contract be reduced in writing or at the

very least communicated in writing to the surety. Such non-compliance by the creditor

impacts not on the validity or legality of the surety contract but on the creditor’s right to

demand performance.

90. The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc., G.R. No. 156302,

April 7, 2009

The liability of the insured carrier or vehicle owner is based on tort, in accordance with

the provisions of the Civil Code; while that of the insurer arises from contract,

particularly, the insurance policy. The third-party liability of the insurer is only up to the

extent of the insurance policy and that required by law; and it cannot be held solidarily

liable for anything beyond that amount.

91. Jewel Villacorta vs. The Insurance Commission, et al., G.R. No. 54171. October 28,

1980

The main purpose of the “authorized driver” clause is that a person other than the insured

owner, who drives the car on the insured’s order, such as his regular driver, or with his

permission, such as a friend or member of the family or the employees of a car service or

repair shop must be duly licensed drivers and have no disqualification to drive a motor

vehicle. The mere happenstance that the employee(s) of the shop owner diverts the use of

the car to his own illicit or unauthorized purpose in violation of the trust reposed in the

Mercantile Law

shop by the insured car owner does not mean that the “authorized driver” clause has been

violated such as to bar recovery, provided that such employee is duly qualified to drive

under a valid driver’s license. It is the theft clause, not the “authorized driver” clause that

applies.

92. Perla Compania De Seguros, Inc., vs. Hon. Constante A. Ancheta, Presiding Judge

of the Court of First Instance of Camarines Norte, Branch III, et al., G.R. No. L-

49699, August 8, 1988

From a reading Section 378, the following rules on claims under the “no fault indemnity”

provision, where proof of fault or negligence is not necessary for payment of any claim

for death or injury to a passenger or a third party, are established: 1.) A claim may be

made against one motor vehicle only. 2.) If the victim is an occupant of a vehicle, the

claim shall lie against the insurer of the vehicle in which he is riding, mounting or

dismounting from. 3.) In any other case (i.e. if the victim is not an occupant of a vehicle),

the claim shall lie against the insurer of the directly offending vehicle. 4.) In all cases, the

right of the party paying the claim to recover against the owner of the vehicle responsible

for the accident shall be maintained.

93. Lalican vs. Insular Life Assurance Company Ltd, 597 SCRA 159, 2009)

The existence of an insurance interest gives a person the legal right to insure the subject

matter of the policy of insurance. Section 19 of the Insurance Code states that an interest

in the life or health of a person insured must exist when the insurance takes effect, but

need not exist thereafter or when the loss occurs.

94. Spouses Nilo Cha and Stella Uy Cha vs. Court of Appeals, G.R. No. 124520. August

18, 1997

A non-life insurance policy such as the fire insurance policy taken by spouses Cha over

their merchandise is primarily a contract of indemnity. Insurable interest in the property

insured must exist at the time the insurance takes effect and at the time the loss occurs.

The basis of such requirement of insurable interest in property insured is based on sound

public policy: to prevent a person from taking out an insurance policy on property upon

which he has no insurable interest and collecting the proceeds of said policy in case of

loss of the property. In such a case, the contract of insurance is a mere wager which is

void under Section 25 of the Insurance Code.

95. Malayan Insurance Company vs. PAP Co. (PHIL. BRANCH). G.R. No. 200784,

August 07, 2013

With the transfer of the location of the subject properties, without notice and without the

insurer’s consent, after the renewal of the policy, the insured clearly committed

concealment, misrepresentation and a breach of a material warranty. Section 26 of the

Insurance Code provides that a neglect to communicate that which a party knows and

ought to communicate, is called a concealment.

Mercantile Law

Under Section 27 of the Insurance Code, “a concealment entitles the injured party to

rescind a contract of insurance.” Moreover, under Section 168 of the Insurance Code, the

insurer is entitled to rescind the insurance contract in case of an alteration in the use or

condition of the thing insured. Section 168 of the Insurance Code provides, as follows:

An alteration in the use or condition of a thing insured from that to which it is limited by

the policy made without the consent of the insurer, by means within the control of the

insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

96. Armando Geagonia vs. Court of Appeals, et al., G.R. No. 114427, February 6, 1995

A double insurance exists where the same person is insured by several insurers separately

in respect of the same subject and interest. Since, the insurable interests of a mortgagor

and a mortgagee on the mortgaged property are distinct and separate, the two policies of

the PFIC do not cover the same interest as that covered by the policy of the private

respondent, no double insurance exists.

97. Great Pacific Life vs. Court of Appeals, 316 SCRA 677, 1999

Where a mortgagor pays insurance premium under group insurance policy (Mortgage

Redemption Insurance), making loss payable to mortgagee, the insurance is on

mortgagor’s interest, and mortgagor continues to be a party to the contract. In this type of

policy insurance, mortgagee is simply an appointee of the insurance fund, such loss-

payable clause does not make mortgagee a party to the contract

98. Malayan Insurance Co., Inc., vs. Philippine First Insurance Co., Inc. and Reputable

Forwarder Services, Inc., G.R. No. 184300, July 11, 2012

By the express provision of Section 93 of the Insurance Code, double insurance exists

where the same person is insured by several insurers separately in respect to the same

subject and interest. The requisites in order for double insurance to arise are as follows: 1.)

The person insured is the same; 2.) Two or more insurers insuring separately; 3.) There is

identity of subject matter; 4.) There is identity of interest insured; and 5.) There is

identity of the risk or peril insured against. In the present case, even though the two

insurance policies were issued over the same goods and cover the same risk, there arises

no double insurance since they were issued to two different persons/entities having

distinct insurable interests. Necessarily, over insurance by double insurance cannot

likewise exist.

99. Malayan Insurance Co., Inc. vs. Gregoria Cruz Arnaldo, in her capacity as the

Insurance Commissioner, et al., G.R. No. L-67835, October 12, 1987

For a valid cancellation of the policy, the following requisites must concur: 1) There must

be prior notice of cancellation to the insured; 2) The notice must be based on the

occurrence, after the effective date of the policy, of one or more of the grounds

mentioned; 3) The notice must be (a) in writing, (b) mailed, or delivered to the named

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insured, (c) at the address shown in the policy; 4) It must state (a) which of the grounds

mentioned in Section 64 is relied upon and (b) that upon written request of the insured,

the insurer will furnish the facts on which the cancellation is based. MICO claims it

cancelled the policy in question for non-payment of premium. However, there is no proof

that the notice, assuming it complied with the other requisites, was actually mailed to and

received by Pinca.

100. Pacific Timber Export Corporation vs. Court of Appeals, et al., G.R. No. L-

38613, February 25, 1982

The non-payment of premium on the cover note is no cause for Pacific to lose what is due

it as if there had been payment of premium, for non-payment by it was not chargeable

against its fault. Had all the logs been lost during the loading operations, but after the

issuance of the cover note, liability on the note would have already arisen even before

payment of premium. This is how the cover note as a "binder" should legally operate

otherwise, it would serve no practical purpose in the realm of commerce, and is supported

by the doctrine that where a policy is delivered without requiring payment of the

premium, the presumption is that a credit was intended and policy is valid.

101. American Homes Assurance vs. Antonio Chua, G.R. 130421, June 28, 1999

Section 78 of the Insurance Code explicitly provides that an acknowledgment in a policy

or contract of insurance of the receipt of premium is conclusive evidence of its payment,

so far as to make the policy binding, notwithstanding any stipulation therein that it shall

not be binding until the premium is actually paid. This Section establishes a legal fiction

of payment and should be interpreted as an exception to Section 77.

102. Ucpb General Insurance Co. Inc., vs. Masagana Telemart, Inc., G.R. No.

137172, April 4, 2001

Section 77 of the Insurance Code of 1978 provides that an insurer is entitled to payment

of the premium as soon as the thing insured is exposed to the peril insured against. The

first exception is provided by Section 77 itself, and that is, in case of a life or industrial

life policy whenever the grace period provision applies. The second is that covered by

Section 78 of the Insurance Code, which provides that any acknowledgment in a policy

or contract of insurance of the receipt of premium is conclusive evidence of its payment,

so far as to make the policy binding, notwithstanding any stipulation therein that it shall

not be binding until premium is actually paid. A third exception was laid down in Makati

Tuscany Condominium Corporation vs. Court of Appeals, wherein the Court ruled that

Section 77 may not apply if the parties have agreed to the payment in installments of the

premium and partial payment has been made at the time of loss. Tuscany has also

provided a fourth exception, namely, that the insurer may grant credit extension for the

payment of the premium. This simply means that if the insurer has granted the insured a

credit term for the payment of the premium and loss occurs before the expiration of the

term, recovery on the policy should be allowed even though the premium is paid after the

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loss but within the credit term. Moreover, as a fifth exception, estoppel bars it from

taking refuge under said Section, since Masagana relied in good faith on such practice.

103. Jose Marques and Maxilite Technologies, Inc., vs. Far East Bank And Trust

Company, et al., G.R. No. 171379, January 10, 2011

FEBTC is estopped from claiming that the insurance premium has been unpaid. FEBTC

induced Maxilite and Marques to believe that the insurance premium has in fact been

debited from Maxilite’s account. However, FEBTC failed to do so. FEBTC’s conduct

clearly constitutes gross negligence in handling Maxilite’s and Marques’ accounts. As a

consequence, FEBTC must be held liable for damages pursuant to Article 2176 of the

Civil Code.

104. South Sea Surety and Insurance Company Inc. v. CA, G.R. No. 102253 June

2, 1995

An insurer which delivers to an insurance agent or insurance broker an insurance policy

shall be deemed to have authorized such agent to receive on its behalf payment of any

premium which is due on such policy.

105. Great Pacific Life Insurance Corporation vs. Court of Appeals, et al., G.R.

No. L-57308, April 23, 1990

Great Pacific should have informed Cortez of the deadline for paying the first premium

before or at least upon delivery of the policy to him, so he could have complied with what

was needful and would not have been misled into believing that his life and his family

were protected by the policy, when actually they were not. And, if the premium paid by

Cortez was unacceptable for being late, it was the company's duty to return it. By

accepting his premiums without giving him the corresponding protection, Great Pacific

acted in bad faith and since his policy was in fact inoperative or ineffectual from the

beginning, the company was never at risk, hence, it is not entitled to keep the premium.

106. Ng Gan Zee vs. Asian Crusader Life Assurance Corporation, G.R. No. L-

30685, May 30, 1983

Concealment exists where the assured had knowledge of a fact material to the risk, and

honesty, good faith, and fair dealing requires that he should communicate it to the assurer,

but he designedly and intentionally withholds the same. In the absence of evidence that

the insured had sufficient medical knowledge as to enable him to distinguish between

"peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of

the stomach, " should be construed as an expression made in good faith of his belief as to

the nature of his ailment and operation.

107. Sunlife Assurance Company of Canada vs. The Court of Appeals, et al., G.R.

No. 105135, June 22, 1995

Where the insured is specifically required to disclose to the insurer matters relating to his

health, the insured's failure to disclose the fact that he was hospitalized for two weeks

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prior to filing his application for insurance, raises grave doubts about his bona fides.

Materiality is to be determined not by the event, but solely by the probable and

reasonable influence of the facts upon the party to whom communication is due, in

forming his estimate of the disadvantages of the proposed contract or in making his

inquiries.

108. Emilio Tan vs. The Court of Appeals, G.R. No. 48049. June 29, 1989

By virtue of the “incontestability clause,” the insurer has two years from the date of

issuance of the insurance contract or of its last reinstatement within which to contest the

policy, whether or not, the insured still lives within such period. After two years, the

defenses of concealment or misrepresentation, no matter how patent or well founded, no

longer lie. Considering that the insured died before the two-year period had lapsed, Phil-

Am Insurance is not, therefore, barred from proving that the policy is void ab initio by

reason of the insured’s fraudulent concealment or misrepresentation.

109. Manila Bankers Life Insurance Corporation vs. Cresencia p. Aban, G.R. No.

175666, July 29, 2013

The "Incontestability Clause" under Section 48 of the Insurance Code provides that an

insurer is given two years – from the effectivity of a life insurance contract and while the

insured is alive – to discover or prove that the policy is void ab initio or is rescindible by

reason of the fraudulent concealment or misrepresentation of the insured or his agent.

After the two-year period lapses, or when the insured dies within the period, the insurer

must make good on the policy, even though the policy was obtained by fraud,

concealment, or misrepresentation.

110. Florendo vs. Philam Plans, GR. No 186983, February 22, 2012

The incontestability clause precludes the insurer from disowning liability under the

policy it issued on the ground of concealment or misrepresentation regarding the health

of the insured after a year of its issuance. Since insured died on the 11th

month following

the issuance of his plan, the incontestability period has not yet set in. Consequently, the

insurer was not barred from questioning the beneficiary’s entitlement to the benefits of

the pension plan.

111. Summit Guaranty And Insurance Company, Inc. vs. Hon. Jose C. De

Guzman, in his capacity as Presiding Judge of Branch III, CFI of Tarlac, et al., G.R.

No. L- 50997, June 30, 1987

There is absolutely nothing in the law which mandates that the two periods prescribed in

Section 384 of the Insurance Code—that is, the six-month period for filing the notice of

claim and the one-year period for bringing an action or suit must always concur. On the

contrary, it is very clear that the one-year period is only required “in proper cases.” The

one-year period should instead be counted from the date of rejection by the insurer as this

is the time when the cause of action accrues. Since in the case at hand, there has yet been

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no accrual of cause of action, prescription has not yet set in. This is because, before such

final rejection, there was no real necessity for bringing suit.

112. H.H. Hollero v. GSIS, G.R. No. 152334, 24 September 2014

The prescriptive period for the insured’s action for indemnity should be reckoned from

the "final rejection" of the claim. "Final rejection" simply means denial by the insurer of

the claims of the insured and not the rejection or denial by the insurer of the insured’s

motion or request for reconsideration. A perusal of the letter dated April 26, 1990 shows

that the GSIS denied Hollero Construction’s indemnity claims. The same conclusion

obtains for the letter dated June 21, 1990 denying Hollero Construction’s indemnity

claim. Holler's causes of action for indemnity respectively accrued from its receipt of the

letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in

the first instance. Consequently, given that it allowed more than twelve (12) months to

lapse before filing the necessary complaint before the RTC on September 27, 1991, its

causes of action had already prescribed.

113. Malayan Insurance Co., Inc., vs. Rodelio Alberto, et al., G.R. No. 194320,

February 1, 2012

The right of subrogation accrues simply upon payment by the insurance company of the

insurance claim. When it is not disputed that the insurance company indeed paid, then

there is valid subrogation in its favor.

114. Loadstar Shipping Company v. Malayan Insurance Company, G.R. No.

185565, November 26, 2014

Under the Code of Commerce, if the goods are delivered but arrived at the destination in

damaged condition, the remedies to be pursued by the consignee depend on the extent of

damage on the goods. If the effect of damage on the goods consisted merely of

diminution in value, the carrier is bound to pay only the difference between its price on

that day and its depreciated value as provided under Article 364. Malayan, as the insurer

of PASAR, neither stated nor proved that the goods are rendered useless or unfit for the

purpose intended by PASAR due to contamination with seawater. Hence, there is no

basis for the goods’ rejection under Article 365 of the Code of Commerce. Clearly, it is

erroneous for Malayan to reimburse PASAR as though the latter suffered from total loss

of goods in the absence of proof that PASAR sustained such kind of loss.

115. Eastern Shipping Lines, Inc. vs. Prudential Guarantee and Assurance, Inc.,

G.R. No. 174116, September 11, 2009

The insurer, upon happening of the risk "insured" against and after payment to the

insured, is subrogated to the rights and cause of action of the latter. As such, the insurer

has the right to seek reimbursement for all the expenses paid. However, in a contract of

carriage involving the shipment of knock-down auto parts of Nissan motor vehicles

which were allegedly lost and destroyed, the insurer was not properly subrogated because

of the non-presentation of any marine insurance policy. The submission of a marine risk

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note instead of the insurance policy doesn't satisfy the requirement for subrogation. The

marine risk note is not an insurance policy. It is only an acknowledgment or declaration

of the insurer confirming the specific shipment covered by its marine open policy, the

evaluation of the cargo and the chargeable premium.

116. Asian Terminals Inc. vs. First Lepanto Taisho Corporation, G.R. No. 185964,

16 June 2014

The shipment received by the ATI from the vessel of COCSCO was found to have

sustained loss and damages. An arrastre operator’s duty is to take good care of the goods

and to turn them over to the party entitled to their possession. It must prove that the losses

were not due to its negligence or to that of its employees. The Court held that ATI failed

to discharge its burden of proof. ATI blamed COSCO but when the damages were

discovered, the goods were already in ATI’s custody for two weeks. Witnesses also

testified that the shipment was left in an open area exposed to the elements, thieves and

vandals.

Transportation Laws

117. Pedro De Guzman vs. Court of Appeals, G. R. No. L-47822, 22 December

1988

Article 1732 makes no distinction between one whose principal business activity is the

carrying of persons or goods or both, and one who does such carrying only as

an ancillary activity (in local idiom as "a sideline"). It also carefully avoids making any

distinction between a person or enterprise offering transportation service on a regular or

scheduled basis and one offering such service on an occasional, episodic or unscheduled

basis. Neither does it distinguish between a carrier offering its services to the "general

public," i.e., the general community or population, and one who offers services or solicits

business only from a narrow segment of the general population.

118. Philippine American General Insurance Company vs. Pks Shipping

Company, G.R. No. 149038, 9 April 2003

Much of the distinction between a “common or public carrier” and a “private or special

carrier” lies in the character of the business, such that if the undertaking is an isolated

transaction, not a part of the business or occupation, and the carrier does not hold itself

out to carry the goods for the general public or to a limited clientele, although involving

the carriage of goods for a fee, the person or corporation providing such service could

very well be just a private carrier.

119. Spouses Perena vs Spouses Nicolas, GR No. 157917, August 29, 2012

Persons engaged in the business of transporting students from their respective residences

to their school and back are considered common carrier. Despite catering to a limited

clientele, they operated as a common carrier because they held themselves out as a ready

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transportation indiscriminately to the students of a particular school living within or near

where they operated the service and for a fee.

120. Unsworth Transport International (Phils.) vs. Court of Appeals ,G.R. No.

166250, 26 July 2010

A freight forwarder’s liability is limited to damages arising from its own negligence,

including negligence in choosing the carrier; however, where the forwarder contracts to

deliver goods to their destination instead of merely arranging for their transportation, it

becomes liable as a common carrier for loss or damage to goods. A freight forwarder

assumes the responsibility of a carrier, which actually executes the transport, even though

the forwarder does not carry the merchandise itself.

121. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation, GR

No. 179446, January 10, 2011

A customs broker whose services were engaged for the release and withdrawal of the

cargoes from the pier and their subsequent delivery to the consignee’s warehouse and the

owner of the delivery truck whom the customs broker contracted to transport the cargoes

to the warehouse are both common carriers. The latter is considered a common carrier in

the absence of indication that it solely and exclusively rendered services to the customs

broker. Thus, when the truck failed to deliver one of the cargoes, both the broker and

owner of the truck are liable. Being both common carriers, they are mandated from the

nature of their business and for reasons of public policy, to observe the extraordinary

diligence in the vigilance over the goods transported by them according to all the

circumstances of such case. Thus, in case of loss of the goods, the common carrier is

presumed to have been at fault or to have acted negligently.

122. Westwind Shipping Corporation vs. UCPB General Insurance Co., GR no.

2002289, November 25, 2013

The arrastre operator is likewise liable. The functions of an arrastre operator involve the

handling of cargo deposited on the wharf or between the establishment of the consignee

or shipper and the ship’s tackle. Being the custodian of the goods discharged from a

vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over

to the party entitled to their possession. While it is true that an arrastre operator and a

carrier may not be held solidarily liable at all times, the facts of these cases show that

apart from the stevedores of the arrastre operator being directly in charge of the physical

unloading of the cargo, its foreman picked the cable sling that was used to hoist the

packages for transfer to the dock. Moreover, the fact that the packages were unloaded

with the same sling unharmed is telling of the inadequate care with which the stevedore

handled and discharged the cargo.

123. Unknown Owner Of The Vessel M/V China Joy vs. Asian Terminals Inc. G.R.

No. 195661, 11 March 2015

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The functions of an arrastre operator involve the handling of cargo deposited on the

wharf or between the establishment of the consignee or shipper and the ship’s tackle.

Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is

to take good care of the goods and to turn them over to the party entitled to their

possession. The legal relationship between an arrastre operator and a consignee is akin to

that between a warehouseman and a depositor. As to both the nature of the functions and

the place of their performance, an arrastre operator’s services are clearly not maritime in

character.

In Insurance Company of North America v. Asian Terminals, Inc., the Court explained

that the liabilities of the arrastre operator for losses and damages are set forth in the

contract for cargo handling services it had executed with the PPA. Corollarily then, the

rights of an arrastre operator to be paid for damages it sustains from handling cargoes do

not likewise spring from contracts of carriage. However, in the instant petition, the

contending parties make no references at all to any provisions in the contract for cargo

handling services ATI had executed with the PPA. Notwithstanding the above, the

petitioners cannot evade liability for the damage caused to ATI’s unloader in view of

Article 2176 of the New Civil Code.

124. R Transport Corporation vs. Pante, GR No. 162104, September 15, 2009

When a bus hit a tree and house due to the fast and reckless driving of the bus driver

resulting in injury to one of its passengers, the bus owner is liable and such liability does

not cease even upon proof that he exercised all the diligence of a good father of family in

the selection and supervision of its employees.

125. Asian Terminals, Inc vs. Simon Enterprises, Inc. GR No. 177116, February

27, 2013

Though it is true that common carriers are presumed to have been at fault or to have acted

negligently if the goods transported by them are lost, destroyed, or deteriorated, and that

the common carrier must prove that it exercised extraordinary diligence in order to

overcome the presumption, the plaintiff must still, before the burden is shifted to the

defendant, prove that the subject shipment suffered actual shortage. This can only be

done if the weight of the shipment at the port of origin and its subsequent weight at the

port of arrival have been proven by a preponderance of evidence, and it can be seen that

the former weight is considerably greater than the latter weight, taking into consideration

the exceptions provided in Article 1734 of the Civil Code.

126. Equitable Leasing Corporation vs. Lucita Suyom et al., G.R. No. 143360, 5

September 2002

In an action based on quasi delict, the registered owner of a motor vehicle is solidarily

liable for the injuries and damages caused by the negligence of the driver, in spite of the

fact that the vehicle may have already been the subject of an unregistered Deed of Sale in

favor of another person. Unless registered with the Land Transportation Office, the sale --

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while valid and binding between the parties -- does not affect third parties, especially the

victims of accidents involving the said transport equipment.

127. William Tiu, doing business under the name and style of “D’ Rough Riders,”

vs. Pedro A. Arriesgado, G.R. No. 138060, 1 September 2004

The principle of last clear chance only applies in a suit between the owners and drivers of

two colliding vehicles. It does not arise where a passenger demands responsibility from

the carrier to enforce its contractual obligations, for it would be inequitable to exempt the

negligent driver and its owner on the ground that the other driver was likewise guilty of

negligence.

128. Spouses Cesar & Suthira Zalamea vs. Court of Appeals, G.R. No. 104235

November 18, 1993

When an airline issues a ticket to a passenger confirmed on a particular flight, on a

certain date, a contract of carriage arises, and the passenger has every right to expect that

he would fly on that flight and on that date. If he does not, then the carrier opens itself to

a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it

took the risk of having to deprive some passengers of their seats in case all of them would

show up for the check in. For the indignity and inconvenience of being refused a

confirmed seat on the last minute, said passenger is entitled to an award of moral

damages.

129. Cathay Pacific Airways, Ltd., vs. Spouses Daniel Vazquez And Maria Luisa

Madrigal Vazquez, G.R. No. 150843, March 14, 2003

Spouses Vazquez had every right to decline the upgrade and insist on the Business Class

accommodation they had booked for and which was designated in their boarding

passes. They clearly waived their priority or preference when they asked that other

passengers be given the upgrade. It should not have been imposed on them over their

vehement objection. By insisting on the upgrade, Cathay breached its contract of

carriage with Spouses Vazquez.

130. Heirs of Josemaria Ochoa vs. G&S Transport Corporation, March 19,2011

as affirmed in the July 16, 2012 decision

In a contract of carriage, it is presumed that the common carrier is at fault or is negligent

when a passenger dies or is injured. In fact, there is even no need for the court to make an

express finding of fault or negligence on the part of the common carrier. This statutory

presumption may only be overcome by evidence that the carrier exercised extraordinary

diligence. Unfortunately, the common carrier miserably failed to overcome this

presumption as the accident which led to the passenger’s death was due to the reckless

driving and gross negligence of its driver.

131. Victory Liner, Inc. vs. Rosalito Gammad, G.R. No. 159636, November 25,

2004

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A common carrier is bound to carry its passengers safely as far as human care and

foresight can provide, using the utmost diligence of very cautious persons, with due

regard to all the circumstances. In a contract of carriage, it is presumed that the common

carrier was at fault or was negligent when a passenger dies or is injured. Unless the

presumption is rebutted, the court need not even make an express finding of fault or

negligence on the part of the common carrier. This statutory presumption may only be

overcome by evidence that the carrier exercised extraordinary diligence.

132. Antonia Maranan vs. Pascual Perez, et al, G.R. No. L-22272, June 26, 1967

The basis of the carrier's liability for assaults on passengers committed by its drivers rests

either on (1) the doctrine of respondeat superior or (2) the principle that it is the carrier's

implied duty to transport the passenger safely. Under the first, which is the minority view,

the carrier is liable only when the act of the employee is within the scope of his authority

and duty. It is not sufficient that the act be within the course of employment only. Under

the second view, upheld by the majority and also by the later cases, it is enough that the

assault happens within the course of the employee's duty. It is no defense for the carrier

that the act was done in excess of authority or in disobedience of the carrier's orders.The

carrier's liability here is absolute in the sense that it practically secures the passengers

from assaults committed by its own employees. As can be gleaned from Art. 1759, the

Civil Code of the Philippines evidently follows the rule based on the second view. At

least three very cogent reasons underlie this rule: (1) the special undertaking of the carrier

requires that it furnish its passenger that full measure of protection afforded by the

exercise of the high degree of care prescribed by the law, inter alia from violence and

insults at the hands of strangers and other passengers, but above all, from the acts of the

carrier's own servants charged with the passenger's safety; (2) said liability of the carrier

for the servant's violation of duty to passengers, is the result of the former’s confiding in

the servant's hands the performance of his contract to safely transport the passenger,

delegating therewith the duty of protecting the passenger with the utmost care prescribed

by law; and (3) as between the carrier and the passenger, the former must bear the risk of

wrongful acts or negligence of the carrier's employees against passengers, since it, and

not the passengers, has power to select and remove them.

133. Jose Pilapil vs. Hon. Court of Appeals, G.R. No. 52159, 22 December 1989

A tort committed by a stranger which causes injury to a passenger does not accord the

latter a cause of action against the carrier. The negligence for which a common carrier is

held responsible is the negligent omission by the carrier's employees to prevent the tort

from being committed when the same could have been foreseen and prevented by them.

134. Alberta Yobido vs. Court of Appeals, G.R. No. 113003, 17 October 1997

A fortuitous event is possessed of the following characteristics: (a) the cause of the

unforeseen and unexpected occurrence, or the failure of the debtor to comply with his

obligations, must be independent of human will; (b) it must be impossible to foresee the

event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to

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avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill

his obligation in a normal manner; and (d) the obligor must be free from any participation

in the aggravation of the injury resulting to the creditor. Under the circumstances of this

case, the explosion of the new tire may not be considered a fortuitous event. There are

human factors involved in the situation. The fact that the tire was new did not imply that

it was entirely free from manufacturing defects or that it was properly mounted on the

vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand

name noted for quality, resulting in the conclusion that it could not explode within five

days’ use.

135. Fortune Express, Inc. vs. Court of Appeals, G.R. No. 119756, 18 March 1999

Despite the report of Philippine Constabulary agent Generalao that the Maranaos were

going to attack its buses, Fortune took no steps to safeguard the lives and properties of its

passengers. The seizure of the bus of the Fortune was foreseeable and, therefore, was not

a fortuitous event which would exempt petitioner from liability.

136. Loadstar Shipping Co., Inc. vs. Court of Appeals, G.R. No. 131621, 28

September 1999

Loadstar was at fault or negligent in not maintaining a seaworthy vessel and in having

allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it

did not sink because of any storm that may be deemed as force majeure, inasmuch as the

wind condition in the area where it sank was determined to be moderate. Since it was

remiss in the performance of its duties, Loadstar cannot hide behind the “limited liability”

doctrine to escape responsibility for the loss of the vessel and its cargo.

137. Smith Bell Dodwell Shipping Agency Corporation vs. Catalino Borja, G.R.

No. 143008. June 10, 2002

Negligence is conduct that creates undue risk of harm to another. It is the failure to

observe that degree of care, precaution and vigilance that the circumstances justly

demand, whereby that other person suffers injury. Petitioner’s vessel was carrying

chemical cargo—alkyl benzene and methyl methacrylate monomer. While knowing that

their vessel was carrying dangerous inflammable chemicals, its officers and crew failed

to take all the necessary precautions to prevent an accident. Petitioner was, therefore,

negligent.

138. Aniceto Saludo, Jr. vs. Hon. Court of Appeals, G.R. No. 95536, March 23,

1992

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a

special contract, a carrier is not an insurer against delay in transportation of goods. When

a common carrier undertakes to convey goods, the law implies a contract that they shall

be delivered at destination within a reasonable time, in the absence, of any agreement as

to the time of delivery. But where a carrier has made an express contract to transport and

deliver property within a specified time, it is bound to fulfill its contract and is liable for

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any delay, no matter from what cause it may have arisen. This result logically follows

from the well-settled rule that where the law creates a duty or charge, and the party is

disabled from performing it without any default in himself, and has no remedy over, then

the law will excuse him, but where the party by his own contract creates a duty or charge

upon himself, he is bound to make it good notwithstanding any accident or delay by

inevitable necessity because he might have provided against it by contract. Whether or

not there has been such an undertaking on the part of the carrier to be determined from

the circumstances surrounding the case and by application of the ordinary rules for the

interpretation of contracts.

139. Virgines Calvo doing business under the name and style Transorient

Container Terminal Services, Inc. vs. Ucpb General Insurance Co., Inc., G.R. No.

148496, 19 March 2002

The rule is that if the improper packing or, in this case, the defect/s in the container, is/are

known to the carrier or his employees or apparent upon ordinary observation, but he

nevertheless accepts the same without protest or exception notwithstanding such

condition, he is not relieved of liability for damage resulting therefrom. In this case,

Calvo accepted the cargo without exception despite the apparent defects in some of the

container vans. Hence, for failure of Calvo to prove that she exercised extraordinary

diligence in the carriage of goods in this case or that she is exempt from liability, the

presumption of negligence as provided under Art. 1735 holds.

140. Provident Insurance Corp., vs. Court of Appeals, G.R. No. 118030, January

15, 2004

The bill of lading defines the rights and liabilities of the parties in reference to the

contract of carriage. Stipulations therein are valid and binding in the absence of any

showing that the same are contrary to law, morals, customs, public order and public

policy. Where the terms of the contract are clear and leave no doubt upon the intention of

the contracting parties, the literal meaning of the stipulations shall control. In light of the

foregoing, there can be no question about the validity and enforceability of Stipulation

No. 7 in the bill of lading. The twenty-four hour requirement under the said stipulation is,

by agreement of the contracting parties, a sine qua non for the accrual of the right of

action to recover damages against the carrier.

141. Keng Hua Paper Products Co., Inc. vs. Court of Appeals, 286 SCRA 257,

1998

A bill of lading serves two functions: First, it is a receipt for the goods shipped. Second, it

is a contract by which three parties, namely, the shipper, the carrier, and the consignee

undertake specific responsibilities and assume stipulated obligations. A bill of lading

delivered and accepted constitutes the contract of carriage even though not signed,

because the acceptance of a paper containing the terms of a proposed contract generally

constitutes an acceptance of the contract and of all its terms and conditions of which the

acceptor has actual or constructive notice.

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142. Aboitiz Shipping Corporation vs. Insurance Company of North America,

G.R. No. 168402, August 6, 2008

Under the Code of Commerce, the notice of claim must be made within twenty four (24)

hours from receipt of the cargo if the damage is not apparent from the outside of the

package. For damages that are visible from the outside of the package, the claim must be

made immediately. Provisions specifying a time to give notice of damage to common

carriers are ordinarily to be given a reasonable and practical, rather than a strict

construction. Understandably, when the goods were delivered, the necessary clearance

had to be made before the package was opened. Upon opening and discovery of the

damaged condition of the goods, a report to this effect had to pass through the proper

channels before it could be finalized and endorsed by the institution to the claims

department of the shipping company. The call to Aboitiz was made two days from

delivery, a reasonable period considering that the goods could not have corroded instantly

overnight such that it could only have sustained the damage during transit. Moreover,

Aboitiz was able to immediately inspect the damage while the matter was still fresh. In

so doing, the main objective of the prescribed time period was fulfilled. Thus, there was

substantial compliance with the notice requirement in this case.

143. Ucpb General Insurance Co., Inc., vs. Aboitiz Shipping Corporation, et. al.,

G.R. No. 168433, February 10, 2009

The Court has construed the 24-hour claim requirement as a condition precedent to the

accrual of a right of action against a carrier for loss of, or damage to, the goods. The

shipper or consignee must allege and prove the fulfillment of the condition. Otherwise,

no right of action against the carrier can accrue in favor of the shipper or consignee.

144. Philam Insurance Company vs. Heung A Shipping Corporation, G.R. No.

187701 &G.R. No. 187812, 23 July 2014

Common carriers, as a general rule, are presumed to have been at fault or negligent if the

goods they transported deteriorated or got lost or destroyed. That is, unless they prove

that they exercised extraordinary diligence in transporting the goods. In order to avoid

responsibility for any loss or damage, therefore, they have the burden of proving that they

observed such diligence. As the carrier of the subject shipment, HEUNG-A was bound to

exercise extraordinary diligence in conveying the same and its slot charter agreement

with DONGNAMA did not divest it of such characterization nor relieve it of any

accountability for the shipment. However, the liability of HEUNG-A is limited to $500

per package or pallet because in case of the shipper’s failure to declare the value of the

goods in the bill of lading, Section 4, paragraph 5 of the COGSA provides that neither the

carrier nor the ship shall in any event be or become liable for any loss or damage to or in

connection with the transportation of goods in an amount exceeding $500 per package.

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145. Oceaneering Contractrors (Phils), Inc. v. Nestor Barreto, doing business as

NNB Lighterage , GR No. 184215, February 9, 2011

Where the agreement executed by the parties was a time charter where the possession and

control of the barge was retained by the owner, the latter is, therefore, a common carrier

legally charged with extraordinary diligence in the vigilance over the goods transported

by him. The sinking of the vessel created a presumption of negligence and/or

unseaworthiness which the barge owner failed to overcome and gave rise to his liability

for the charterer lost cargo despite the latter’s failure to insure the same.

146. Caltex Philippines, Inc. vs. Sulpicio Lines, Inc., et. al., G.R. No. 131166,

September 30, 1999

A charter party is a contract by which an entire ship, or some principal part thereof, is

let by the owner to another person for a specified time or use; a contract of

affreightment is one by which the owner of a ship or other vessel lets the whole or part

of her to a merchant or other person for the conveyance of goods, on a particular voyage,

in consideration of the payment of freight. A contract of affreightment may be

either time charter, wherein the leased vessel is leased to the charterer for a fixed period

of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases,

the charter-party provides for the hire of the vessel only, either for a determinate period

of time or for a single or consecutive voyage, the ship owner to supply the ship’s store,

pay for the wages of the master of the crew, and defray the expenses for the maintenance

of the ship. Under a demise or bareboat charter on the other hand, the charterer mans

the vessel with his own people and becomes, in effect, the owner for the voyage or

service stipulated, subject to liability for damages caused by negligence. If the charter is a

contract of affreightment, which leaves the general owner in possession of the ship as

owner for the voyage, the rights and the responsibilities of ownership rest on the

owner. The charterer is free from liability to third persons in respect of the ship. It is only

when the charter includes both the vessel and its crew, as in a bareboat or demise that a

common carrier becomes private, at least insofar as the particular voyage covering the

charter-party is concerned.

147. Chua Yek Hong vs. Intermediate Appellate Court, G.R. No. 74811, 30

September 1988

The term "ship agent" as used in the foregoing provision is broad enough to include the

ship owner. Pursuant to said provision, therefore, both the ship owner and ship agent are

civilly and directly liable for the indemnities in favor of third persons, which may arise

from the conduct of the captain in the care of goods transported, as well as for the safety

of passengers transported. However, under the same Article, this direct liability is

moderated and limited by the ship agent's or ship owner's right of abandonment of the

vessel and earned freight. The most fundamental effect of abandonment is the cessation

of the responsibility of the ship agent/owner. The ship owner's or agent's liability is

merely co-extensive with his interest in the vessel such that a total loss thereof results in

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its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule.

The total destruction of the vessel extinguishes maritime liens as there is no longer any

res to which it can attach.

148. Dela Torre vs. Court of Appeals, GR No. 160088, July 13, 2011

The LIMITED LIABILITY RULE cannot be availed of by the charterers/sub-charterer in

order to escape from their liability. The Code of Commerce is clear on which indemnities

may be confined or restricted to the value of the vessel and these are the – “indemnities in

favor of third persons which may arise from the conduct of the captain in the care of the

goods which he loaded on the vessel.” Thus, what is contemplated is the liability to third

persons who may have dealt with the SHIPOWNER, the AGENT or even the

CHARTERER in case of demise or bareboat charter.

The Charterer cannot use the said Rule because it does not completely and absolutely step

into the shoes of the shipowner or even the ship agent because there remains conflicting

rights between the former and the real shipowner as derived from their charter agreement.

Therefore, even if the contract is for a bareboat or demise charter where possession, free

administration and even navigation are temporarily surrendered to the charterer,

dominion over the vessel remains with the shipowner. Ergo, the charterer or the sub-

charterer, whose rights cannot rise above that of the former, can never set up the Limited

Liability Rule against the very owner of the vessel.

149. National Development Company vs. The Court of Appeals, G.R. No. L-49469,

August 19, 1988

The law of the country to which the goods are to be transported governs the liability of

the common carrier in case of their loss, destruction or deterioration (Article 1753, Civil

Code). Thus, the rule was specifically laid down that for cargoes transported from Japan

to the Philippines, the liability of the carrier is governed primarily by the Civil Code and

in all matters not regulated by said Code, the rights and obligations of common carrier

shall be governed by the Code of Commerce and by special laws (Article 1766, Civil

Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to

the provision of the Civil Code.

150. Loadstar Shipping Co., Inc., vs. Court of Appeals, G.R. No. 131621

September 28, 1999

Inasmuch as neither the Civil Code nor the Code of Commerce states a specific

prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) — which

provides for a one-year period of limitation on claims for loss of, or damage to, cargoes

sustained during transit — may be applied suppletorily to the case at bar. This one-year

prescriptive period also applies to the insurer of the goods.

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151. Wallem Philippines Shipping vs SR Farms, GR No. 161849, July 9, 2010

Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three

days of delivery. Under the same provision, however, a failure to file a notice of claim

within three days will not bar recovery if a suit is nonetheless filed within one year from

delivery of the goods or from the date when the goods should have been delivered. The

filing of an amended pleading does not retroact to the date of the filing of the original. It

is true that, as an exception, an amendment which merely supplements and amplifies

facts originally alleged in the complaint relates back to the commencement of the action

and is not barred by the statute of limitations which expired after the service of the

original complaint. The exception, however, would not apply to the party impleaded for

the first time after the service of the amended complaint. In this case, petitioner was not

impleaded as a defendant in the original complaint filed on March 11, 1993. It was only

on June 7, 1993 that the Amended Complaint, impleading petitioner as defendant, was

filed. Considering this circumstances, clearly, the suit against the petitioner was filed

beyond the prescriptive period of the filing of claims as provided in the COGSA.

152. Asian Terminals Inc., v. Philam Insurance Co. G.R. NO. 181262 , July 24,

2013

In any event the carrier and the ship shall be discharged from all liability in respect of

loss or damage unless suit is brought within one year after delivery of the goods or the

date when the goods should have been delivered: Provided, That if a notice of loss or

damage, either apparent or concealed, is not given as provided for in this section, that fact

shall not affect or prejudice the right of the shipper to bring suit within one year after the

delivery of the goods or the date when the goods should have been delivered.

153. Mitsui O.S.K. Lines Ltd. vs. Court of Appeals, G.R. No. 119571, March 11,

1998

The one-year period of limitation is designed to meet the exigencies of maritime hazards.

In a case where the goods shipped were neither lost nor damaged in transit but were, on

the contrary, delivered in port to someone who claimed to be entitled thereto, the

situation is different, and the special need for the short period of limitation in cases of

loss or damage caused by maritime perils does not obtain.

154. New World International Development Corporation vs NYK-FilJapan

Shipping Corporation, GR No. 171468, August 24, 2011

Notwithstanding the fact that the case was filed beyond the one-year prescriptive period

provided under the COGSA, the suit (against the insurer) will not be dismissed if the

delay was not due to the claimant’s fault. Had the insurer processed and examined the

claim promptly, the claimant or the insurer itself, as subrogee, could have taken the

judicial action on time. By making an unreasonable demand for an itemized list of

damages which caused delay, the insurer should bear the loss with interest,

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155. Insurance Company of North America vs. Asian Terminals, Inc. GR No.

180784, February 15, 2012

The term “ carriage of goods “ covers the period from the time when the goods are loaded

to the time when they are discharged from the ship; thus, it can be inferred that the period

of time when the goods have been discharged from the ship and given to the custody of

the arrastre operator is not covered by the COGSA. Under the COGSA, the carrier and

the ship may put up the defense of prescription if the action for damages is not brought

within one year after delivery of the goods or the date when the goods should have been

delivered. However, the COGSA does not mention than an arrastre operator may invoke

the prescriptive period; hence, it does not cover the arrastre operator. The arrastre

operator’s responsibility and liability for losses and damages are set forth in the contract

for cargo handling services executed between the Philippine Ports Authority and Marina

Port Services.

156. Lhuillier vs British Airways, G.R. No. 171092, March 15, 2010

Under Article 28 (1) of the Warsaw Convention, the plaintiff may bring the action for

damages before: 1) the court where carrier is domiciled; 2) the court where the carrier has

its principal place of business; 3) the court where the carrier has an establishment by

which the contract has been made; or 4) the court of the place of destination. In this case,

it is not disputed that respondent is a British corporation domiciled in London, United

Kingdom with London as its principal place of business. Hence, under the first and

second jurisdictional rules, the petitioner may bring her case before the courts of London

in the United Kingdom. In the passenger ticket and baggage check presented by both the

petitioner and respondent, it appears that the ticket was issued in Rome,

Italy. Consequently, under the third jurisdictional rule, the petitioner has the option to

bring her case before the courts of Rome in Italy. Finally, both the petitioner and

respondent aver that the place of destination is Rome, Italy, which is properly designated

given the routing presented in the said passenger ticket and baggage check. Accordingly,

petitioner may bring her action before the courts of Rome, Italy. Thus, the RTC of

Makati correctly ruled that it does not have jurisdiction over the case filed by the

petitioner even though it was based on tort and not on breach of contract.

157. Philippine Airlines Inc. vs. Court of Appeals, G.R. No. 119706, March 14,

1996

While the Warsaw Convention has the force and effect of law in the Philippines, being a

treaty commitment by the government and as a signatory thereto, the same does not

operate as an exclusive enumeration of the instances when a carrier shall be liable for

breach of contract or as an absolute limit of the extent of liability, nor does it preclude the

operation of the Civil Code or other pertinent laws. The acceptance in due course by PAL

of Mejia’s cargo as packed and its advice against the need for declaration of its actual

value operated as an assurance to Mejia that in fact there was no need for such a

declaration. Mejia can hardly be faulted for relying on the representations of PAL’s own

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personnel. In other words, Mejia could and would have complied with the conditions

stated in the air waybill, i.e., declaration of a higher value and payment of supplemental

transportation charges, entitling her to recovery of damages beyond the stipulated limit of

US$20 per kilogram of cargo in the event of loss or damage, had she not been effectively

prevented from doing so upon the advice of PAL’s personnel for reasons best known to

themselves. Even if the claim for damages was conditioned on the timely filing of a

formal claim, under Article 1186 of the Civil Code that condition was deemed fulfilled,

considering that the collective action of PAL’s personnel in tossing around the claim and

leaving it unresolved for an indefinite period of time was tantamount to “voluntarily

preventing its fulfillment.” On grounds of equity, the filing of the baggage freight claim,

which sufficiently informed PAL of the damage sustained by private respondent’s cargo,

constituted substantial compliance with the requirement in the contract for the filing of a

formal claim.

158. Philippine Airlines Inc. vs. Hon. Adriano Savillo, et. al., G.R. No. 149547,

July 4, 2008

Article 19 of the Warsaw Convention provides for liability on the part of a carrier for

“damages occasioned by delay in the transportation by air of passengers, baggage or

goods.” Article 24 excludes other remedies by further providing that “(1) in the cases

covered by articles 18 and 19, any action for damages, however founded, can only be

brought subject to the conditions and limits set out in this convention.” Therefore, a

claim covered by the Warsaw Convention can no longer be recovered under local law, if

the statute of limitations of two years has already lapsed. Nevertheless, the Court notes

that jurisprudence in the Philippines and the United States also recognizes that the

Warsaw Convention does not “exclusively regulate” the relationship between passenger

and carrier on an international flight. The Court finds that the present case is

substantially similar to cases in which the damages sought were considered to be outside

the coverage of the Warsaw Convention.

Corporation Law

159. Benny Hung vs BPI Finance Corporation . G.R. No. 182398, 20 July 2010

When the corporation (BB Sportswear, Inc.) which the plaintiff erroneously impleaded in

a collection case was not the party to the actionable agreement and turned out to be not

registered with the Securities and Exchange Commission, the judgment may still be

enforced against the corporation (BB Footwear, Inc.) which filed the answer and

participated in the proceedings, as well as its controlling shareholder who signed the

actionable agreement in his personal capacity and as a single proprietorship doing

business under the trade name and style of BB Sportswear Enterprises.

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160. Sappari K. Sawadjaanvs. the Honorable Court of Appeals, the Civil Service

Commission and Al-amanah Investment Bank of the Philippines, G.R. No. 141735,

June 8, 2005

By its failure to submit its by-laws on time, the AIIBP may be considered a de facto

corporation whose right to exercise corporate powers may not be inquired into

collaterally in any private suit to which such corporation may be a party. A corporation

which has failed to file its by-laws within the prescribed period does not ipso facto lose

its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of

Registration of Corporations, details the procedures and remedies that may be availed of

before an order of revocation can be issued. There is no showing that such a procedure

has been initiated in this case.

161. Reynaldo M. Lozano vs. Hon. Eliezer R. De los Santos, Presiding Judge,

RTC, Br. 58, Angeles City; and Antonio Anda, G.R. No. 125221, June 19, 1997

The plan of the parties to consolidate their respective jeepney drivers' and operators'

associations into a single common association, if not yet approved by the SEC, neither

had its officers and members submitted their articles of consolidation in accordance with

Sections 78 and 79 of the Corporation Code, is a mere proposal to form a unified

association. Any dispute arising out of the election of officers of said unified association

is therefore not an intra-corporate dispute.

162. Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448,

3 November 1999

Under the law on estoppel, those acting on behalf of a corporation and those benefited by

it, knowing it to be without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation.

However, having reaped the benefits of the contract entered into by persons with whom

he previously had an existing relationship, he is deemed to be part of said association and

is covered by the scope of the doctrine of corporation by estoppel.

163. International Express Travel & Tour Services, Inc. vs. Hon. Court of

Appeals, Henri Kahn, Philippine Football Federation, G.R. No. 119002, October 19,

2000

When the petitioner is not trying to escape liability from the contract but rather the one

claiming from the contract, the doctrine of corporation by estoppel is not applicable. This

doctrine applies to a third party only when he tries to escape liability on a contract from

which he has benefited on the irrelevant ground of defective incorporation.

164. Macasaet vs. Francisco, GR No. 156759, June 5, 2013

Corporation by estoppel results when a corporation represented itself to the public as

such despite its not being incorporated. A corporation by estoppel may be impleaded as a

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party defendant considering that it possesses attributes of a juridical person, otherwise, it

cannot be held liable for damages and injuries it may inflict to other persons.

165. Engr. Ranulfo C. Feliciano, in his capacity as General Manager of the Leyte

Metropolitan Water District (LMWD), Tacloban City vs. Commission on Audit,

Chairman CELSO D. GANGAN, Commissioners Raul C. Flores and Emmanuel M.

Dalman, and Regional Director of COA Region VIII, G.R. No. 147402, 14 January

2004

Congress can not enact a law creating a private corporation with a special charter. Such

legislation would be unconstitutional. Private corporations may exist only under a general

law. If the corporation is private, it must necessarily exist under a general law.

166. Dante V. Liban, Reynaldo M. Bernardo and Salvador M. Viari vs. Richard J.

Gordon, G. R. No. 175352, January 18, 2011

Although the Philippine National Red Cross was created by a special charter, it can not

be considered a government-owned and controlled corporation in the absence of the

essential elements of ownership and control by the government. It does not have

government assets and does not receive any appropriation from the Philippine Congress.

It is a non-profit, donor-funded, voluntary organization, whose mission is to bring timely,

effective and compassionate humanitarian assistance for the most vulnerable without

consideration of nationality, race, religion, gender, social status or political affiliation.

This does not mean however that the charter of PNRC is unconstitutional. PNRC has a

sui generis status. Although it is neither a subdivision, agency, or instrumentality of the

government, nor a government-owned or -controlled corporation or a subsidiary thereof,

so much so that Gordon was correctly allowed to hold his position as Chairman thereof

concurrently while he served as a Senator, such a conclusion does not ipso facto imply

that the PNRC is a “private corporation” within the contemplation of the provision of the

Constitution, that must be organized under the Corporation Code. The PNRC enjoys a

special status as an important ally and auxiliary of the government in the humanitarian

field in accordance with its commitments under international law. This Court cannot all

of a sudden refuse to recognize its existence, especially since the issue of the

constitutionality of the PNRC Charter was never raised by the parties.

167. Antonio M. Carandang vs. Honorable Aniano A. Desierto, Office of the

Ombudsman, G.R. No. 153161, January 12, 2011

A government–owned or controlled corporation refers to any agency organized as a stock

or non-stock corporation vested with functions relating to public needs whether

governmental or proprietary in nature and owned by the government through its

instrumentalities either wholly or where applicable as in the case of stock corporation to

the extent of at least 51% of its capital stock. When a stockholder ceded to the

government shares representing 72.4 % of the voting stock of the corporation but

subsequently clarified that it should be reduced to 32.4%, the corporation shall not be

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considered government-owned and controlled until the quantification of shares is

resolved with finality.

168. Marissa R. Unchuan vs. Antonio J.P. Lozada, Anita Lozada and the Register

of Deeds of Cebu City, G.R. No. 172671, April 16, 2009

A corporation organized under the laws of the Philippines of which at least 60% of the

capital stock outstanding and entitled to vote is owned and held by citizens of the

Philippines, is considered a Philippine National. As such, the corporation may acquire

disposable lands in the Philippines.

169. Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines

Inc., G.R. No. 195580, 28 January 2015

A corporation that complies with the 60-40 Filipino to foreign equity requirement can be

considered a Filipino corporation if there is no doubt as to who has the “beneficial

ownership” and “control” of the corporation. In this case, a further investigation as to the

nationality of the personalities with the beneficial ownership and control of the corporate

shareholders in both the investing and investee corporations is necessary. “Doubt” refers

to various indicia that the “beneficial ownership” and “control” of the corporation do not

in fact reside in Filipino shareholders but in foreign stakeholders. Even if at first glance

the petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt exists in the

present case that gives rise to a reasonable suspicion that the Filipino shareholders do not

actually have the requisite number of control and beneficial ownership in petitioners

Narra, Tesoro, and McArthur. Hence, the Court is correct in using the Grandfather Rule

in determining the nationality of the petitioners.

170. Rolando DS. Torres v. Rural Bank of San Juan, Inc. et al., G.R. No. 184520,

March 13, 2013

A corporation has its own legal personality separate and distinct from those of its

stockholders, directors or officers. Hence, absent any evidence that they have exceeded

their authority, corporate officers are not personally liable for their official acts.

Corporate directors and officers may be held solidarily liable with the corporation for the

termination of employment only if done with malice or in bad faith.

171. Mercy Vda. de Roxas, represented by Arlene C. Roxas-Cruz, in her capacity

as substitute appellant- petitioner vs. Our Lady's Foundation, Inc. G.R. No. 182378,

March 6, 2013

In order for the Court to hold the officer of the corporation personally liable alone for the

debts of the corporation and thus pierce the veil of corporate fiction, the Court has

required that the bad faith of the officer must first be established clearly and convincingly.

Petitioner, however, has failed to include any submission pertaining to any wrongdoing

of the general manager. Necessarily, it would be unjust to hold the latter personally liable.

Moreso, if the general manager was never impleaded as a party to the case.

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172. Development Bank of the Philippines vs. Hydro Resources Contractors

Corporation, GR. No. 167603, March 13, 2013

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1)

defeat of public convenience as when the corporate fiction is used as a vehicle for the

evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to

justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a

corporation is merely a farce since it is a mere alter ego or business conduit of a person,

or where the corporation is so organized and controlled and its affairs are so conducted as

to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

In this connection, case law lays down a three-pronged test to determine the application

of the alter ego theory, which is also known as the instrumentality theory, namely:

1. Control, not mere majority or complete stock control, but complete domination, not

only of finances but of policy and business practice in respect to the transaction attacked

so that the corporate entity as to this transaction had at the time no separate mind, will or

existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to

perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust

act in contravention of plaintiff’s legal right; and;

3. The aforesaid control and breach of duty must have proximately caused the injury or

unjust loss complained of.

The first prong is the "instrumentality" or "control" test. This test requires that the

subsidiary be completely under the control and domination of the parent. It inquires

whether a subsidiary corporation is so organized and controlled and its affairs are so

conducted as to make it a mere instrumentality or agent of the parent corporation such

that its separate existence as a distinct corporate entity will be ignored. In addition, the

control must be shown to have been exercised at the time the acts complained of took

place.

The second prong is the "fraud" test. This test requires that the parent corporation’s

conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It examines

the relationship of the plaintiff to the corporation. It recognizes that piercing is

appropriate only if the parent corporation uses the subsidiary in a way that harms the

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plaintiff creditor. As such, it requires a showing of "an element of injustice or

fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the

defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it,

caused the harm suffered. A causal connection between the fraudulent conduct committed

through the instrumentality of the subsidiary and the injury suffered or the damage

incurred by the plaintiff should be established. The plaintiff must prove that, unless the

corporate veil is pierced, it will have been treated unjustly by the defendant’s exercise of

control and improper use of the corporate form and, thereby, suffer damages.

173. Gregorio Singian, Jr. vs. the Honorable Sandiganbayan and the Presidential

Commission on Good Government, G.R. Nos. 160577-94, December 16, 2005

The powers to increase capitalization and to offer or give collateral to secure

indebtedness are lodged with the corporation’s board of directors. However, this does

not mean that the officers of the corporation other than the board of directors cannot be

made criminally liable for their criminal acts if it can be proven that they participated

therein.

174. Filipinas Broadcasting Network, Inc. vs. AGO Medical And Educational

Center-Bicol Christian College of Medicine, (AMEC-BCCM) and Angelita F. Ago,

G.R. No. 141994, January 17, 2005

A juridical person is generally not entitled to moral damages because, unlike a natural

person, it cannot experience physical suffering or such sentiments as wounded feelings,

serious anxiety, mental anguish or moral shock. Nevertheless, AMEC’s claim for moral

damages falls under item 7 of Article 2219 of the Civil Code which expressly authorizes

the recovery of moral damages in cases of libel, slander or any other form of defamation.

Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person.

Therefore, a juridical person such as a corporation can validly complain for libel or any

other form of defamation and claim for moral damages.

175. Manila Electric Company vs. T.E.A.M. Electronics Corporation, Technology

Electronics Assembly and Management Pacific Corporation; and Ultra Electronics

Instruments, Inc., G.R. No. 131723, December 13, 2007

As a rule, a corporation is not entitled to moral damages because, not being a natural

person, it cannot experience physical suffering or sentiments like wounded feelings,

serious anxiety, mental anguish and moral shock. The only exception to this rule is when

the corporation has a reputation that is debased, resulting in its humiliation in the

business realm. But in such a case, it is essential to prove the existence of the factual

basis of the damage and its causal relation to petitioner's acts. Thus, where the records are

bereft of evidence that the name or reputation of the corporation has been debased as a

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result of Meralco’s act (which in this case is the disconnection without written notice of

the disconnection of the electricity supply to the building of the corporation due to

alleged meter tampering), the corporation is not entitled to moral damages.

176. Kukan International Corporation vs. Hon. Judge Amor Reyes, G.R. No.

182729, 29 September 2010

The court must first acquire jurisdiction over the corporation or corporations involved

before its or their separate personalities are disregarded; and the doctrine of piercing the

veil of corporate entity can only be raised during a full-blown trial over a cause of action

duly commenced involving parties duly brought under the authority of the court by way

of service of summons or what passes as such service.

177. Gold Line Tours vs. Heirs of Maria Concepcion Lacsa, GR No. 159108, 18

June 2012

However, in another case involving an action for breach of contract of carriage resulting

to the death of one of the passengers , Supreme Court ruled that if the RTC had sufficient

factual basis to conclude that the two corporations are one and the same entity as when

they have the same President and controlling shareholder and it is generally known in the

place where they do business that both transportation companies are one, the third party

claim filed by the other corporation was set aside and the levy on its property held valid

even though the latter was not made a party to the case . The judgment may be enforced

against the other corporation to prevent multiplicity of suits and save the parties

unnecessary expenses and delay.

178. Prince Transport, Inc. vs. Garcia, GR No. 167291, January 12, 2011

The doctrine of piercing the veil of corporate fiction is applicable not only to corporations

but also to a single proprietorship as when the corporation transferred its employees to

the company owned by the controlling stockholder of the corporation and yet despite the

transfer, the employees’ daily time records, reports, daily income remittances and

schedule of work were all made, performed, filed and kept in the corporation. The

corporation is clearly hiding behind the supposed separate and distinct personality of the

company. As such, the corporation and the company should be solidarily liable for the

claims of the illegally dismissed employees.

179. Pacific Rehouse Corporation vs. Court of Appeals, GR. No. 199687, March

24, 2014

Where the court rendered judgment against a stock brokerage firm directing the latter to

return shares of stock which it sold without authority, but the writ of execution was

returned unsatisfied, an alias writ of execution could not be enforced against its parent

company because the court has not acquired jurisdiction over the latter and while the

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parent company owns and controls the brokerage firm, there is no showing that the

control was used to violate the rights of the plaintiff.

180. Arco Pulp & Paper Co. Inc. v. Lim, G.R. No. 206806, 25 June 2014

The corporate existence may be disregarded where the entity is formed or used for non-

legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to

shield or perpetrate fraud or to carry out similar or inequitable considerations, other

unjustifiable aims or intentions, in which case, the fiction will be disregarded and the

individuals composing it and the two corporations will be treated as identical. In the case

at bar, when petitioner Arco Pulp and Paper’s obligation to Lim became due and

demandable, she not only issued an unfunded check but also contracted with a third party

in an effort to shift petitioner Arco Pulp and Paper’s liability. She unjustifiably refused to

honor petitioner corporation’s obligations to respondent. These acts clearly amount to bad

faith. In this instance, the corporate veil may be pierced, and petitioner Santos may be

held solidarily liable with petitioner Arco Pulp and Paper.

181. Livesey vs. Binswanger Philippines, GR No. 177493, March 19, 2014

Piercing the veil of corporate fiction is warranted when a corporation ceased to exist only

in name as it re-emerged in the person of another corporation, for the purpose of evading

its unfulfilled financial obligation under a compromise agreement. Thus, if the judgment

for money claim could not be enforced against the employer corporation, an alias writ

may be obtained against the other corporation considering the indubitable link between

the closure of the first corporation and incorporation of the other.

182. WPM International Trading Inc. v. Labayen, G.R. No. 182770, 17 September

2014

When an officer owns almost all of the stocks of a corporation, it does not ipso facto

warrant the application of the principle of piercing the corporate veil unless it is proven

that the officer has complete dominion over the corporation.

183. Heirs of Fe Tan Uy, represented by her heir, Mauling Uy Lim vs.

International Exchange Bank, G.R. No. 166282 & 83, February 13, 2013

Under a variation of the doctrine of piercing the veil of corporate fiction, when two

business enterprises are owned, conducted and controlled by the same parties, both law

and equity will, when necessary to protect the rights of third parties, disregard the legal

fiction that two corporations are distinct entities and treat them as identical or one and the

same. While the conditions for the disregard of the juridical entity may vary, the

following are some probative factors of identity that will justify the application of the

doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc.,v NLRC: (1)

Stock ownership by one or common ownership of both corporations; (2) Identity of

directors and officers; (3) The manner of keeping corporate books and records, and (4)

Methods of conducting the business.

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184. Mariano A. Albert vs. University Publishing Co., Inc., G.R. No. L-19118,

January 30, 1965

When the President of a non-existent principal entered into a contract and failed to pay its

obligation, he shall be the one liable to the aggrieved party. A person acting as a

representative of a non-existent principal is the real party to the contract sued upon, being

the one who reaped the benefits resulting from it.

185. Samahang Optometrists saPilipinas, Ilocos Sur- Abra Chapter, et al. vs.

Acebedo International Corporation and the Hon. Court of Appeals, G.R. No.

117097, 21 March 1997

A corporation created and organized for the purpose of conducting the business of selling

optical lenses or eyeglasses is not engaged in the practice of optometry because the

determination of the proper lenses to sell to private respondent's clients entails the

employment of optometrists who have been precisely trained for that purpose. Private

respondent's business, rather, is the buying and importing of eyeglasses and lenses and

other similar or allied instruments from suppliers thereof and selling the same to

consumers.

186. P.C. Javier & Sons, Inc., et al. vs.Paic Savings & Mortgage Bank, Inc., et al.,

G.R. No. 129552, June 29, 2005

A change in the corporate name does not make a new corporation, whether effected by a

special act or under a general law. It has no effect on the identity of the corporation, or on

its property, rights, or liabilities because the corporation upon such change in its name, is

in no sense a new corporation, nor the successor of the original corporation.

187. Zuellig Freight and Cargo Systemsvs. National Labor Relations Commission,

et al., G.R. No. 157900, July 22, 2013

The mere change in the corporate name is not considered under the law as the creation of

a new corporation; hence, the renamed corporation remains liable for the illegal dismissal

of its employee separated under that guise. Verily, the amendments of the articles of

incorporation of Zeta to change the corporate name to Zuellig Freight and Cargo

Systems, Inc., did not produce the dissolution of the former as a corporation.

188. Heirs of Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et al.,

G.R. No. 176579, October 9, 2012

Since the constitutional requirement of at least 60 percent Filipino ownership applies not

only to voting control of the corporation but also to the beneficial ownership of the

corporation, it is therefore imperative that such requirement applies uniformly and across

the board to all classes of shares, regardless of nomenclature and category, comprising

the capital of a corporation. Since a specific class of shares may have rights and

privileges or restrictions different from the rest of the shares in a corporation, the 60-40

ownership requirement in favor of Filipino citizens in Section 11, Article XII of the

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Constitution must apply not only to shares with voting rights but also to shares without

voting rights.

189. Alicia E. Gala, et al.vs. Ellice Agro-Industrial Corporation, et al., G.R. No.

156819, December 11, 2003

The best proof of the purpose of a corporation is its articles of incorporation and by-laws,

and in the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo

shows no sign of the allegedly illegal purposes that petitioners are complaining of. It is

well to note that, if a corporation’s purpose, as stated in the Articles of Incorporation, is

lawful, then the SEC has no authority to inquire whether the corporation has purposes

other than those stated, and mandamus will lie to compel it to issue the certificate of

incorporation.

190. Hyatt Elevators and Escalators Corporation vs. Goldstar Elevators Phils.,

Inc., G.R. No. 161026, October 24, 2005

The venue in this case was improperly laid because the principal office of Hyatt as stated

in the Articles of Incorporation is in Makati but the case was filed in Mandaluyong where

Hyatt transferred its operations. Since the principal place of business of a corporation

determines its residence or domicile, then the place indicated in petitioner’s articles of

incorporation becomes controlling in determining the venue for the filing of a case.

191. John Gokongwei, Jr. vs. Securities and Exchange Commission, et al., G.R.

No. L-45911, April 11, 1979

Every corporation has the inherent power to adopt by-laws 'for its internal government,

and to regulate the conduct and prescribe the rights and duties of its members towards

itself and among themselves in reference to the management of its affairs. Under Section

21 of the Corporation Law, a corporation may prescribe in its by-laws the qualifications,

duties and compensation of directors, officers and employees.

192. Loyola Grand Villas Homeowners (South) Association, Inc. vs. Hon. Court of

Appeals, Home Insurance And Guaranty Corporation, Emden Encarnacion and

Horatio Aycardo, G.R. No. 117188, August 7, 1997

Non-filing of the by-laws will not result in automatic dissolution of the corporation.

Under Section 6(I) of PD 902-A, the SEC is empowered to ‘suspend or revoke, after

proper notice and hearing, the franchise or certificate of registration of a corporation’ on

the ground inter alia of ‘failure to file by-laws within the required period.

193. Matling Industrial and Commercial Corporation, et al. vs. Ricardo R. Coros,

G.R. No. 157802, October 13, 2010

Conformably with Section 25 of the Corporation Code, a position must be expressly

mentioned in the By-Laws in order to be considered as a corporate office. Thus, the

creation of an office pursuant to or under a By-Law enabling provision is not enough to

make a position a corporate office.

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194. Grace Christian High Schoolvs.the Court Of Appeals, Grace Village

Association, Inc., Alejandro G. Beltran, and Ernesto L. Go, G.R. No. 108905, 23

October 1997

A provision in the by-laws of the corporation stating that of the 15 members of its Board

of Directors, only 14 members would be elected while the remaining member would be

the representative of an educational institution located in the village of the homeowners,

is invalid for being contrary to law. The fact that for fifteen years it has not been

questioned or challenged but, on the contrary, appears to have been implemented by the

members of the association cannot forestall a later challenge to its validity because, if it is

contrary to law, it is beyond the power of the members of the association to waive its

invalidity.

195. Cebu Country Club, Inc., et al. vs. Ricardo F. Elizagaque, G.R. No. 160273,

January 18, 2008

When an amendment to a provision in the Amended By-Laws requiring the unanimous

vote of the directors present at a special or regular meeting was not printed on the

application form for proprietory membership, and what was printed thereon was the

original provision which was silent on the required number of votes needed for admission

of an applicant as a proprietary member, the Board of Directors committed fraud and

evident bad faith in disapproving respondent’s application under Article 31 of the

Corporation Code. The explanation given by the petitioner that the amendment was not

printed on the application form due to economic reasons is flimsy and unconvincing

because such amendment, aside from being extremely significant, was introduced way

back in 1978 or almost twenty (20) years before respondent filed his application.

196. Mid Pasig Land and Development Corporation v. Tablante, G.R. No. 162924,

February 4, 2010

These officers are in the position to verify the truthfulness and correctness of the

allegations in the petition.

197. Esguerra vs. Holcim Philippines G.R. No. 182571, September 2, 2013

The general rule is that a corporation can only exercise its powers and transact its

business through its board of directors and through its officers and agents when

authorized by a board resolution or its bylaws. The power of a corporation to sue and be

sued is exercised by the board of directors. The physical acts of the corporation, like the

signing of documents, can be performed only by natural persons duly authorized for the

purpose by corporate bylaws or by a specific act of the board. Absent the said board

resolution, a petition may not be given due course.

198. Spouses Afulugencia vs. Metropolitan Bank and Trust Co. G.R. No. 185145,

February 05, 2014

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In a complaint for nullification of mortgage and foreclosure with damages against the

mortgagee-bank, the plaintiff can not compel the officers of the bank to appear and testify

as plaintiff’s initial witnesses unless written interrogatories are first served upon the bank

officers. This is in line with the Rules of Court provision that calling the adverse party to

the witness stand is not allowed unless written interrogatories are first served upon the

latter. This is because the officers of a corporation are considered adverse parties as well

in a case against the corporation itself based on the principle that corporations act only

through their officers and duly authorized agents.

199. Islamic Directorate of the Philippines, Manuel F. Perea and Securities &

Exchange Commission,vs. Court of Appeals And Iglesia Ni Cristo, G.R. No. 117897,

May 14, 1997

Where an asset constitutes the only property of the corporation, its sale to a third-party is

a sale or disposition of all the corporate property and assets of said corporation falling

squarely within the contemplation of Section 40 of the Corporation Code. Hence, for the

sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the

vote of at least 2/3 of the bona fide members of the corporation should have been

obtained.

200. Republic Planters Bank vs. Hon. Enrique A. Agana, Sr., as Presiding Judge,

Court of First Instance of Rizal, Branch XXVIII, Pasay City, Robes-Francisco

Realty & Development Corporation and Adalia F. Robes, G.R. No. 51765, March 3,

1997

Dividends cannot be declared for preferred shares which were guaranteed a quarterly

dividend if there are no unrestricted retained earnings. "Interest bearing stocks,” on which

the corporation agrees absolutely to pay interest before dividends are paid to common

stockholders, is legal only when construed as requiring payment of interest as dividends

from net earnings or surplus only.

201. Lopez Realty Inc. v. Spouses Tanjangco, G.R. No. 154291, November 12,

2014

The general rule is that a corporation, through its board of directors, should act in the

manner and within the formalities, if any, prescribed by its charter or by the general law.

Directors must act as a body in a meeting called pursuant to the law or the corporation's

by-laws, otherwise, any action taken therein may be questioned by any objecting director

or shareholder; but an action of the board of directors during a meeting, which was illegal

for lack of notice, may be ratified either expressly, by the action of the directors in

subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct.

202. Atrium Management Corporation vs. Court of Appeals, et al., G.R. No.

109491, February 28, 2001

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The act of issuing the checks was well within the ambit of a valid corporate act, for it was

for securing a loan to finance the activities of the corporation, hence, not an ultra vires

act.

203. Megan Sugar Corporation vs. RTC of Ilo-ilo Br. 68, GR no. 170352, June 1,

2011

A corporation cannot deny the authority of lawyer when they clothed him with apparent

authority to act in their behalf such as when he entered his appearance accompanied by

the corporation’s general manager and the corporation never questioned his acts and even

took time and effort to forward all the court documents to him. The lawyer may not have

been armed with a board resolution but the doctrine of apparent authority imposes

liability not as a result of contractual relationship but rather because of the actions of the

principal or an employer in somehow misleading the public that the relationship or the

authority exists.

204. Advance Paper Corporation vs Arma Traders Corporation , G.R. No 176897,

December 11, 2013.

The doctrine of apparent authority provides that a corporation will be estopped from

denying the agent’s authority if it knowingly permits one of its officers or any other agent

to act within the scope of an apparent authority, and it holds him out to the public as

possessing the power to do those acts.

Apparent authority is derived not merely from practice. Its existence may be ascertained

through (1) the general manner in which the corporation holds out an officer or agent as

having the power to act or, in other words the apparent authority to act in general, with

which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual

or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It

is not the quantity of similar acts which establishes apparent authority, but the vesting of

a corporate officer with the power to bind the corporation. When the sole management of

the corporation was entrusted to two of its officers/incorporators with the other officers

never had dealings with the corporation for 14 years and that the board and the

stockholders never had its meeting, the corporation is now estopped from denying the

officers’ authority to obtain loan from the lender on behalf of the corporation under the

doctrine of apparent authority.

205. Ong Yong, et al. vs. David S. Tiu, et al., G.R. No. 144476 & G.R. No. 144629,

8 April 2003

In the instant case, the rescission of the Pre-Subscription Agreement will effectively

result in the unauthorized distribution of the capital assets and property of the corporation,

thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a

subscription agreement is not one of the instances when distribution of capital assets and

property of the corporation is allowed. The Trust Fund Doctrine provides that

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subscriptions to the capital stock of a corporation constitute a fund to which the creditors

have a right to look for the satisfaction of their claims.

206. Filipinas Port Services, Inc., represented by stockholders, Eliodoro C. Cruz

and Mindanao Terminal and Brokerage Services, Inc. vs. Victoriano S. Go, et al.,

G.R. No. 161886, March 16, 2007

The determination of the necessity for additional offices and/or positions in a corporation

is a management prerogative which courts are not wont to review in the absence of any

proof that such prerogative was exercised in bad faith or with malice.Indeed, it would be

an improper judicial intrusion into the internal affairs of Filport for the Court to

determine the propriety or impropriety of the creation of offices therein and the grant of

salary increases to officers thereof.

207. United Coconut Planters Bank vs. Planters Products, Inc., Janet Layson and

Gregory Grey, G.R. No. 179015, June 13, 2012

The execution of a document by a bank manager called “pagares” which guaranteed

purchases on credit by a client is contrary to the General Banking Law which prohibits

bank officers from guaranteeing loans of bank clients. In this case, it is plain from the

guarantee Grey executed that he was acting for himself, not in representation of UCPB;

hence, UCPB cannot be bound by Grey’s above undertaking since he appears to have

made it in his personal capacity.

208. Mercy Vda. de Roxas vs. Our Lady's Foundation, Inc., G.R. No. 182378,

March 6, 2013

To hold the general manager personally liable alone for the debts of the corporation and

thus pierce the veil of corporate fiction, it is required that the bad faith of the officer be

established clearly and convincingly. Petitioner, however, has failed to include any

submission pertaining to any wrongdoing of the general manager. Necessarily, it would

be unjust to hold the latter personally liable.

209. Polymer Rubber Corporation vs. Ang, G.R. No. 185160. July 24, 2013

Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are

not their personal liability but the direct responsibility of the corporation they represent.

As a rule, they are only solidarily liable with the corporation for the illegal termination of

services of employees if they acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites

must concur: (1) it must be alleged in the complaint that the director or officer assented to

patently unlawful acts of the corporation or that the officer was guilty of gross negligence

or bad faith; and (2) there must be proof that the officer acted in bad faith. The fact that

the corporation ceased its operations the day after the promulgation of the SC resolution

finding the corporation liable does not prove bad faith on the part of the incorporator of

the corporation.

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210. Elizabeth M. Gagui vs. Simeon Dejero and Teodoro Permejo, G.R. No.

196036, October 23, 2013

Although joint and solidary liability for money claims and damages against a corporation

attaches to its corporate directors and officers under R.A. 8042, it is not automatic. To

make them jointly and solidarily liable, there must be a finding that they were remiss in

directing the affairs of the corporation, resulting in the conduct of illegal activities.

Absent any findings regarding the same, the corporate directors and officers cannot be

held liable for the obligation of the corporation against the judgment debtor.

211. Rosita Peña vs. the Court of Appeals, Spouses Rising T. Yap and Catalina

Yap, Pampanga Bus Co., Inc., Jesus Domingo, Joaquin Briones, Salvador

Bernardez, Marcelino Enriquez and Edgardo A. Zabat, G.R. No. 91478, February 7,

1991

Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation

or by-laws of the corporation may fix a greater number than the majority of the number

of board members to constitute the quorum necessary for the valid transaction of business.

When only three (3) out of five (5) members of the board of directors of PAMBUSCO

convened on November 19, 1974 by virtue of a prior notice of a special meeting,there

was no quorum to validly transact business since, under Section 4 of the amended by-

laws hereinabove reproduced, at least four (4) members must be present to constitute a

quorum in a special meeting of the board of directors of PAMBUSCO.

212. SEC vs. CA, G.R. No. 187702, October 22, 2014

The power of the SEC to investigate violations of its rules on proxy solicitation is

unquestioned when proxies are obtained to vote on matters unrelated to the cases

enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies

are solicited in relation to the election of corporate directors, the resulting controversy,

even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be

properly seen as an election controversy within the original and exclusive jurisdiction of

the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5 (c) of

Presidential Decree No. 902-A

Indeed, the validation of proxies in this case relates to the determination of the existence

of a quorum. Nonetheless, it is a quorum for the election of the directors, and, as such,

which requires the presence – in person or by proxy – of the owners of the majority of the

outstanding capital stock of Omico. Also, the fact that there was no actual voting did not

make the election any less so, especially since Astra had never denied that an election of

directors took place.

213. Tam Wing Tak vs. Hon. Ramon P. Makasiar, G.R. No. 122452, January 29,

2001

Under Section 36 of the Corporation Code, read in relation to Section 23, it is clear that

where a corporation is an injured party, its power to sue is lodged with its board of

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directors or trustees. In this case, the petitioner failed to show any proof that he was

authorized or deputized or granted specific powers by the corporation’s board of director

to sue Victor AngSiong for and on behalf of the firm, and therefore he had no such power

or authority to sue on Concord’s behalf.

214. Villamor v Umale, G.R. Nos. 172843 & 172881, 24 September 2014

The Court has recognized that a stockholder's right to institute a derivative suit is not

based on any express provision of the Corporation Code, or even the Securities

Regulation Code, but is impliedly recognized when the said laws make corporate

directors or officers liable for damages suffered by the corporation and its stockholders

for violation of their fiduciary duties. In effect, the suit is an action for specific

performance of an obligation, owed by the corporation to the stockholders, to assist its

rights of action when the corporation has been put in default by the wrongful refusal of

the directors or management to adopt suitable measures for its protection.

215. Legaspi Towers 300, Inc., vs. Muer G.R. No. 170783, June 18, 2012

Petitioners seek the nullification of the election of the Board of Directors composed

of herein respondents, who pushed through with the election even if petitioners had

adjourned the meeting allegedly due to lack of quorum. Petitioners are the injured party,

whose rights to vote and to be voted upon were directly affected by the election of the

new set of board of directors. The party-in-interest are the petitioners as stockholders,

who wield such right to vote. The cause of action devolves on petitioners, not the

condominium corporation, which did not have the right to vote. Hence, the complaint for

nullification of the election is a direct action by petitioners, who were the members of

the Board of Directors of the corporation before the election, against respondents, who

are the newly-elected Board of Directors. Under the circumstances, the derivative suit

filed by petitioners in behalf of the condominium corporation is improper.

216. Majority of Stockholders of Ruby Industrial Corporation vs Lim, GR No.

165887, June 6, 2011

A stock corporation is expressly granted the power to issue or sell stocks. The power to

issue stocks is lodged with the Board of Directors and no stockholders meeting is

required to consider it because additional issuances of stock (unlike increase in capital

stock) does not need approval of the stockholders. What is only required is the board

resolution approving the additional issuance of shares. The corporation shall also file the

necessary application with the SEC to exempt these from the registration requirements

under the SRC.

217. Africa vs. Hon. Sandiganbayan , G.R. Nos. 172222/G.R. No. 174493/ G.R. No.

184636, November 11, 2013

Under the two-tiered test, the government, thru PCGG, may vote sequestered shares if

there is a prima facie evidence that the shares are ill-gotten and there is imminent danger

of dissipation of assets while the case is pending. However, the two- tiered test

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contemplates a situation where the registered stockholders were in control and had been

dissipating company assets and the PCGG wanted to vote the sequestered shares to save

the company. It does not apply when the PCGG had voted the shares and is in control of

the sequestered corporation

218. Marsh Thomson vs. Court of Appeals and the American Champer of

Commerce of the Philippines, Inc,, G.R. No. 116631, October 28, 1998

The authority granted to a corporation to regulate the transfer of its stock does not

empower it to restrict the right of a stockholder to transfer his shares, but merely

authorizes the adoption of regulations as to the formalities and procedure to be followed

in effecting transfer.

219. Valley Golf and Country Club, Inc. v. Vda. De Caram, 585 SCRA 218 (2009)

The arrangement provided for in the by-laws of the Corporation whereby a lien is

constituted on the membership share to answer for subsequent obligations to the

corporation finds applicable parallels under the Civil Code. Membership shares are

considered as movable or personal property, and they can be constituted as security to

secure a principal obligation, such as the dues and fees. There are at least two contractual

modes under the Civil Code by which personal property can be used to secure a principal

obligation. The first is through a contract of pledge, while the second is through a chattel

mortgage. If the stockholder had not signed any document that manifests his agreement to

constitute his Golf Share as security in favor of the Corporation to answer for his

obligations to the club and there is no document that it is substantially compliant with the

form of chattel mortgages, the by-laws could not suffice for that purpose since it is not

designed as a bilateral contract between the stockholder and the Corporation or a vehicle

by which the stockholder expressed his consent to constitute his Share as security for his

account with the Corporation.

220. The Rural Bank of Lipa City, Inc., et al.vs. Honorable Court of Appeals, G.R.

No. 124535, September 28, 2001

For a valid transfer of stocks, there must be strict compliance with the mode of transfer

prescribed by law. The requirements are: (a) There must be delivery of the stock

certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or

other persons legally authorized to make the transfer; and (c) To be valid against third

parties, the transfer must be recorded in the books of the corporation. A deed of

assignment of shares without endorsement and delivery is binding only on the parties and

does not necessarily make the transfer effective as against the corporation.

221. Vicente C. Ponce vs. Alsons Cement Corporation, and Francisco M. Giron,

Jr., G.R. No. 139802, December 10, 2002

Without such recording, the transferee may not be regarded by the corporation as one

among its stockholders and the corporation may legally refuse the issuance of stock

certificates in the name of the transferee even when there has been compliance with the

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requirements of Section 64 of the Corporation Code. The situation would be different if

the petitioner was himself the registered owner of the stock which he sought to transfer to

a third party, for then he would be entitled to the remedy of mandamus.

222. Fil-Estate Golf and Development vs. Vertex Sales and Trading Inc., G.R. No.

202079, June 10, 2013

Section 63 of the Corporation Code provides that shares of stock so issued are personal

property and may be transferred by delivery of the certificate or certificates indorsed by

the owner or his attorney-in-fact or other person legally authorized to make the transfer.

The failure of the stockholder to deliver the stock certificate to the buyer within a

reasonable time the shares covered by the stock certificate should have been delivered is

a substantial breach that entitles the buyer to rescind the sale under Article 1191 of the

Corporation Code. It is not entirely correct to say the sale had already been consummated

as the buyer already enjoyed the rights a shareholder can exercise. The enjoyment of

these rights will not suffice where the law, by its express terms, requires a specific form

to transfer ownership.

223. Yujuico v. Quaiambao, G.R. No. 180416, 02 June 2014

A criminal action based on the violation of a stockholder's right to examine or inspect the

corporate records and the stock and transfer book of a corporation under the second and

fourth paragraphs of Section 74 of the Corporation Code can only he maintained against

corporate officers or any other persons acting on behalf of such corporation. The

complaint and the evidence Quiambao and Sumbilla submitted during preliminary

investigation do not establish that Quiambao and Pilapil were acting on behalf of

STRADEC. Violations of Section 74 contemplates a situation wherein a corporation,

acting thru one of its officers or agents, denies the right of any of its stockholders to

inspect the records, minutes and the stock and transfer book of such corporation. Thus,

the dismissal is valid.

224. SME BANK INC, vs. GASPAR, G.R. No. 186641, October 8, 2013

In this case, the corporate officers and directors who induced the employees to resign

with the assurance that they would be rehired by the new management are personally

liable to the employees who were not actually rehired. However, the officer who did not

participate in the termination of employment and persons who participated in the

unlawful termination of employment but are not directors and officers of the corporation

are not personally liable.

225. Bank of Commerce v Radio Philippines Network, G.R. No. 195615, 21 April

2014

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Indubitably, it is clear that no merger took place between Bancommerce and TRB as the

requirements and procedures for a merger were absent. A merger does not become

effective upon the mere agreement of the constituent corporations. All the requirements

specified in the law must be complied with in order for merger to take effect. Here,

Bancommerce and TRB remained separate corporations with distinct corporate

personalities. What happened is that TRB sold and Bancommerce purchased identified

recorded assets of TRB in consideration of Bancommerce’s assumption of identified

recorded liabilities of TRB including booked contingent accounts. There is no law that

prohibits this kind of transaction especially when it is done openly and with appropriate

government approval.

226. Mindanao Savings and Loan Association, Inc., represented by its Liquidator,

the Philippine Deposit Insurance Corporation vs. Edward Willkom; Gilda Go;

RemediosUy; MalayoBantuas, in his capacity as the Deputy Sheriff of Regional

Trial Court, Branch 3, Iligan City; and the Register of Deeds of Cagayan de Oro

City, G.R. No. 178618, October 11, 2010

The issuance of the certificate of merger is crucial because not only does it bear out

SEC’s approval but it also marks the moment when the consequences of a merger take

place. By operation of law, upon the effectivity of the merger, the absorbed corporation

ceases to exist but its rights and properties, as well as liabilities, shall be taken and

deemed transferred to and vested in the surviving corporation.

227. Bank of the Philippine Islands vs. BPI Employees Union- Davao Chapter-

Federation Of Unions In Bpi Unibank, G.R. No. 164301, October 19, 2011

It is more in keeping with the dictates of social justice and the State policy of according

full protection to labor to deem employment contracts as automatically assumed by the

surviving corporation in a merger, even in the absence of an express stipulation in the

articles of merger or the merger plan. By upholding the automatic assumption of the non-

surviving corporation’s existing employment contracts by the surviving corporation in a

merger, the Court strengthens judicial protection of the right to security of tenure of

employees affected by a merger and avoids confusion regarding the status of their various

benefits which were among the chief objections of our dissenting colleagues.

228. Bank of Philippine Islands v. Lee, G.R. No. 190144, August 1, 2012

Citytrust, therefore, upon service of the notice of garnishment and its acknowledgment

that it was in possession of defendants' deposit accounts became a "virtual party" to or a

"forced intervenor" in the civil case. As such, it became bound by the orders and

processes issued by the trial court despite not having been properly impleaded therein.

Consequently, by virtue of its merger with BPI, the latter, as the surviving corporation,

effectively became the garnishee, thus the "virtual party" to the civil case.

229. Aguirre vs. FQB +7, Inc, GR No. 170770, January 9 2013

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An action to correct entries in the General Information Sheet of the Corporation; to be

recognized as a stockholder and to inspect corporate documents is an intra-corporate

dispute which does not constitute a continuation of corporate business. As such, pursuant

to Section 145 of the Corporation Code, this action is not affected by the subsequent

dissolution of the corporation. The dissolution of the corporation simply prohibits it from

continuing its business. However, despite such dissolution, the parties involved in the

litigation are still corporate actors. The dissolution does not automatically convert the

parties into total strangers or change their intra-corporate relationships. Neither does it

change or terminate existing causes of action, which arose because of the corporate ties

between the parties. Thus, a cause of action involving an intra-corporate controversy

remains and must be filed as an intra-corporate dispute despite the subsequent dissolution

of the corporation.

230. Rene Knecht and Knecht, Inc. vs. United Cigarette Corp., represented by

Encarnacion Gonzales Wong, and Eduardo Bolima, Sheriff, Regional Trial Court,

Branch 151, Pasig City, G.R. No. 139370, July 4, 2002

The trustee (of a dissolved corporation) may commence a suit which can proceed to final

judgment even beyond the three-year period of liquidation. No reason can be conceived

why a suit already commenced by the corporation itself during its existence, not by a

mere trustee who, by fiction, merely continues the legal personality of the dissolved

corporation, should not be accorded similar treatment – to proceed to final judgment and

execution thereof. Indeed, the rights of a corporation that has been dissolved pending

litigation are accorded protection by Section 145 of the Corporation Code which provides

“no right or remedy in favor of or against any corporation, its stockholders, members,

directors, trustees, or officers, nor any liability incurred by any such corporation,

stockholders, members, directors, trustees, or officers, shall be removed or impaired

either by the subsequent dissolution of said corporation or by any subsequent amendment

or repeal of this Code or of any part thereof.”

231. Lucia Barramedavda. de Ballesteros vs. Rural Bank of Canaman, Inc.,

represented by its liquidator, the Philippine Deposit Insurance Corporation, G.R.

No. 176260, November 24, 2010

To allow a creditor’s case to proceed independently of the liquidation case, a possibility

of favorable judgment and execution thereof against the assets of the distressed

corporation would not only prejudice the other creditors and depositors but would defeat

the very purpose for which a liquidation court was constituted as well. The requirement

that all claims against the bank be pursued in the liquidation proceedings filed by the

Central Bank is intended to prevent multiplicity of actions against the insolvent bank and

designed to establish due process and orderliness in the liquidation of the bank, to obviate

the proliferation of litigations and to avoid injustice and arbitrariness.

232. Alabang Corporation Development vs. Alabang Hills Village Association,

G.R. No. 187456, 02 June 2014

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ADC filed its complaint not only after its corporate existence was terminated but also

beyond the three-year period allowed by Section 122 of the Corporation Code. To allow

ADC to initiate the subject complaint and pursue it until final judgment, on the ground

that such complaint was filed for the sole purpose of liquidating its assets, would be to

circumvent the provisions of Section 122 of the Corporation Code. Thus, it is clear that at

the time of the filing of the subject complaint petitioner lacks the capacity to sue as a

corporation.

233. Vigilla vs. Philippine College of Criminology, GR No. 200094, June 10, 2013

The executed releases, waivers and quitclaims are valid and binding upon the parties

notwithstanding the fact that these documents were signed six years after the

Corporation’s revocation of the Certificate of Incorporation. These documents are thus

proof that the employees had received their claims from their employer-corporation in

whose favor the release and quitclaim were issued. The revocation of the corporation

does not mean the termination of its liabilities to these employees. Section 122 of the

Corporation Code provides for a three-year winding up period for a corporation whose

charter is annulled by forfeiture or otherwise to continue as a body corporate for the

purpose, among others, of settling and closing its affairs. As such, these liabilities are

obligations of the dissolved corporation and not of the corporation who contracted the

services of the dissolved corporation.

234. Sergio F. Naguiat, doing business under the name and style Sergio F.

NaguiatEnt., Inc., & Clark Field Taxi, Inc. vs. National Labor Relations

Commission (Third Division), National Organization Of Workingmen and its

members, Leonardo T. Galang, et al., G.R. No. 116123, 13 March 1997

To the extent that the stockholders are actively engaged in the management or operation

of the business and affairs of a close corporation, the stockholders shall be held to strict

fiduciary duties to each other and among themselves. Said stockholders shall be

personally liable for corporate torts unless the corporation has obtained reasonably

adequate liability insurance.

235. PetroniloJ. Barayuga vs. Adventist University of the Philippines, through its

Board of Trustees, represented by its Chairman, Nestor D. Dayson, G.R. No. 168008,

August 17, 2011

The second paragraph of Section 108 of the Corporation Code, although setting the term

of the members of the Board of Trustees at five years, contains a proviso expressly

subjecting the duration to what is otherwise provided in the articles of incorporation or

by-laws of the educational corporation. In AUP’s case, its amended By-Laws provided

that members of the Board of Trustees were to serve a term of office of only two years;

and the officers, who included the President, were to be elected from among the members

of the Board of Trustees during their organizational meeting, which was held during the

election of the Board of Trustees every two years. Naturally, the officers, including the

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President, were to exercise the powers vested by Section 2 of the amended By-Laws for a

term of only two years, not five years.

236. Rev. Luis Ao-as, et al. vs. Hon. Court of Appeals, G.R. No. 128464, June 20,

2006

Section 89 of the Corporation Code pertaining to non-stock corporations which provides

that "the right of the members of any class or classes (of a non-stock corporation) to vote

may be limited, broadened or denied to the extent specified in the articles of

incorporation or the by-laws," is an exception to Section 6 of the same code where it is

provided that "no share may be deprived of voting rights except those classified and

issued as ‘preferred’ or ‘redeemable’ shares, unless otherwise provided in this Code."

The stipulation in the By-Laws providing for the election of the Board of Directors by

districts is a form of limitation on the voting rights of the members of a non-stock

corporation as recognized under the aforesaid Section 89.

237. Cargill, Inc. vs. Intra Strata Assurance Corporation, G.R. No. 168266,

March 15, 2010

A foreign company that merely imports goods from a Philippine exporter, without

opening an office or appointing an agent in the Philippines, is not doing business in the

Philippines. Since the contract between petitioner and NMC involved the purchase of

molasses by petitioner from NMC, it was NMC, the domestic corporation, which derived

income from the transaction and not petitioner. To constitute “doing business,” the

activity undertaken in the Philippines should involve profit-making.

238. Hutchison Ports Philippines Limitedvs.Subic Bay Metropolitan Authority,

International Container Terminal Services Inc., Royal Port Services, Inc. and the

Executive Secretary, G.R. No. 131367, August 31, 2000

There is no general rule or governing principle laid down as to what constitutes “doing”

or “engaging in” or “transacting” business in the Philippines. Each case must be judged

in the light its peculiar circumstances. Thus, it has often been held that a single act or

transaction may be considered as “doing business” when a corporation performs acts for

which it was created or exercises some of the functions for which it was organized. The

amount or volume of the business is of no moment, for even a singular act cannot be

merely incidental or casual if it indicates the foreign corporation’s intention to do

business. Participating in the bidding process constitutes “doing business” because it

shows the foreign corporation’s intention to engage in business here.

239. Steelcase, Inc. vs. Design International Selections, Inc., G.R. No. 171995,

April 18, 2012

The appointment of a distributor in the Philippines is not sufficient to constitute “doing

business” unless it is under the full control of the foreign corporation. If the distributor is

an independent entity which buys and distributes products, other than those of the foreign

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corporation, for its own name and its own account, the latter cannot be considered to be

doing business in the Philippines.

240. MR Holdings, Ltd.vs. Sheriff Carlos P. Bajar, Sheriff Ferdinand M.

Jandusay, Solidbank Corporation, and Marcopper Mining Corporation, G.R. No.

138104, April 11, 2002

241. Global Business Holdings, Inc. vs. Surecomp Software, B.V., G.R. No. 173463,

October 13, 2010

A party is estopped from challenging the personality of a corporation after having

acknowledged the same by entering into a contract with it. The principle is applied to

prevent a person contracting with a foreign corporation from later taking advantage of its

noncompliance with the statutes, chiefly in cases where such person has received the

benefits of the contract.

Securities Regulation Code

242. Betty Gabionza and Isabelita Tan vs. Court of Appeals, G.R. No. 161057,

September 12, 2008

The issuance of checks for the purpose of securing a loan to finance the activities of the

corporation is well within the ambit of a valid corporate act. It is one thing for a

corporation to issue checks to satisfy isolated individual obligations, and another for a

corporation to execute an elaborate scheme where it would comport itself to the public as

a pseudo-investment house and issue postdated checks instead of stocks or traditional

securities to evidence the investments of its patrons.

243. Securities and Exchange Commission vs. Prosperity.Com, Inc., G.R. No.

164197, January 25, 2012

For an investment contract to exist, the following elements, referred to as the Howey test

must concur: (1)a contract, transaction, or scheme; (2)an investment of money;

(3)investment is made in a common enterprise; (4) expectation of profits; and (5)profits

arising primarily from the efforts of others. Network marketing, a scheme adopted by

companies for getting people to buy their products where the buyer can become a down-

line seller, who earns commissions from purchases made by new buyers whom he refers

to the person who sold the product to him, is not an investment contract.

244. Securities and Exchange Commission vs. Oudine Santos, G.R. No. 195542,

March 19, 2014

A person is liable for violation of Section 28 of the SRC where, acting as a broker, dealer

or salesman is in the employ of a corporation which sold or offered for sale unregistered

securities in the Philippines. The transaction initiated by the investment consultant of a

corporation is an investment contract or participation in a profit sharing agreement that

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falls within the definition of law—an investment in a common venture premised on a

reasonable expectation of profits to be derived from the entrepreneurial or managerial

efforts of others.

245. Securities and Exchange Commission vs. Interport Resources Corporation,

et. al., G.R. No. 135808, October 6, 2008

The term “insiders” now includes persons whose relationship or former relationship to

the issuer gives or gave them access to a fact of special significance about the issuer or

the security that is not generally available, and one who learns such a fact from an insider

knowing that the person from whom he learns the fact is such an insider. Insiders have

the duty to disclose material facts which are known to them by virtue of their position but

which are not known to persons with whom they deal and which, if known, would affect

their investment judgment.

246. Philippine Veterans Bank v. Callangan, in her capacity Director of the

Corporation Finance Department of the Securities and Exchange Commission

and/or the Securities and Ex-change Commission, G.R. No. 191995, August 3, 2011

A “public company,” as contemplated by the SRC is not limited to a company whose

shares of stock are publicly listed; even companies whose shares are offered only to a

specific group of people, are considered a public company, provided they fall under

Subsec. 17.2 of the SRC, which provides: “any corporation with a class of equity

securities listed on an Exchange or with assets of at least Fifty Million Pesos

(P50,000,000.00) and having two hundred (200) or more holders, at least two hundred

(200) of which are holding at least one hundred (100) shares of a class of its equity

securities.” Philippine Veterans Bank meets the requirements and as such, is subject to

the reportorial requirements for the benefit of its shareholders.

247. Cemco Holdings, Inc. vs. National Life Insurance Company of the

Philippines, G.R. No. 171815, August 7, 2007

A tender offer is an offer by the acquiring person to stockholders of a public company for

them to tender their shares; it gives the minority shareholders the chance to exit the

company under reasonable terms, giving them the opportunity to sell their shares at the

same price as those of the majority shareholders. The mandatory tender offer is still

applicable even if the acquisition, direct or indirect, is less than 35% when the purchase

would result in ownership of over 51% of the total outstanding equity securities of the

public company.

248. Securities and Exchange Commission vs. Interport Resources Corporation,

et. al., G.R. No. 135808, October 6, 2008

Section 27 (SRC) penalizes an insider’s misuse of material and non-public information

about the issuer, for the purpose of protecting public investors; Section 26 widens the

coverage of punishable acts, which intend to defraud public investors through various

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devices, misinformation and omissions. Section 23 imposes upon (1) a beneficial owner

of more than ten percent of any class of any equity security or (2) a director or any officer

of the issuer of such security, the obligation to submit a statement indicating his or her

ownership of the issuer’s securities and such changes in his or her ownership thereof.

249. Jose U. Pua vs. Citibank, N. A. G.R. No. 180064, September 16, 2013

Civil suits falling under the SRC (like liability for selling unregistered securities) are

under the exclusive original jurisdiction of the RTC and hence, need not be first filed

before the SEC, unlike criminal cases wherein the latter body exercises primary

jurisdiction.

INTELLECTUAL PROPERTY LAW

250. Pearl & Dean (Phil.), Inc. vs. Shoemart, Inc., G.R. No. 148222, August 15,

2003

A trademark is any visible sign capable of distinguishing the goods (trademark) or

services (service mark) of an enterprise and shall include a stamped or marked container

of goods; a trade name refers to the name or designation identifying or distinguishing an

enterprise. Copyright is confined to literary and artistic works which are original

intellectual creations in the literary and artistic domain protected from the moment of

their creation. On the other hand, patentable inventions refer to any technical solution of a

problem in any field of human activity which is new, involves an inventive step and is

industrially applicable.

251. Jessie Ching vs. William Salinas, et. al., G.R. No. 161295, June 29, 2005

A utility model is a technical solution to a problem in any field of human activity which

is new and industrially applicable; it may be, or may relate to, a product, or process, or an

improvement of any of the aforesaid. Being plain automotive spare parts that must

conform to the original structural design of the components they seek to replace, the Leaf

Spring Eye Bushing and Vehicle Bearing Cushion are not ornamental; they lack the

decorative quality or value that must characterize authentic works of applied art and in

actuality, they are utility models, useful articles, albeit with no artistic design or value.

252. Smith Kline Beckman Corporation vs. Court of Appeals, G.R. No. 126627,

August 14, 2003

When the language of its claims is clear and distinct, the patentee is bound thereby and

may not claim anything beyond them. the language of Letter Patent No. 14561 fails to

yield anything at all regarding Albendazole and no extrinsic evidence had been adduced

to prove that Albendazole inheres in petitioner’s patent in spite of its omission therefrom

or that the meaning of the claims of the patent embraces the same.

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253. Phil. Pharmawealth, Inc. vs. Pfizer, Inc., G.R. No. 167715, November 17,

2010

A patentee shall have the exclusive right to make, use and sell the patented machine,

article or product, and to use the patented process for the purpose of industry or

commerce, throughout the territory of the Philippines for the term of the patent; and such

making, using, or selling by any person without the authorization of the patentee

constitutes infringement of the patent. The patentee’s exclusive rights exist only during

the term of the patent, hence, after the cut-off date, the exclusive rights no longer exist

and the temporary restraining order can no longer be issued in its favor.

254. Pascual Godines vs. Court of Appeals, G.R. No. 97343, September 13, 1993

To determine whether the particular item falls within the literal meaning of the patent

claims, the court must juxtapose the claims of the patent and the accused product within

the overall context of the claims and specifications, to determine whether there is exact

identity of all material elements. Viewed from any perspective or angle, the power tiller

of the defendant is identical and similar to that of the turtle power tiller of plaintiff in

form, configuration, design, appearance, and even in the manner of operation.

255. Superior Commercial Enterprises, Inc. vs. Kunnan Enterprises Ltd. and

Sports Concept & Distributor, Inc., G.R. No. 169974, April 20, 2010

The cancellation of registration of a trademark has the effect of depriving the registrant of

protection from infringement from the moment the judgment or order of cancellation has

become final. Accordingly, a distributor has no right to the registration of the disputed

trademarks since the right to register a trademark is based on ownership. An exclusive

distributor who employs the trademark of the manufacturer does not acquire proprietary

rights of the manufacturer, and a registration of the trademark by the distributor as such

belongs to the manufacturer, provided the fiduciary relationship does not terminate before

application for registration is filed.

256. Birkenstock Orthopaedie Gmbh and Co. Kg vs. Philippine Shoe Expo

Marketing Corporation, G.R. No. 194307, November 20, 2013

It is not the application or registration of a trademark that vests ownership thereof, but it

is the ownership of a trademark that confers the right to register the same. Registration

merely creates a prima facie presumption of the validity of the registration, of the

registrant’s ownership of the trademark, and of the exclusive right to the use thereof; it is

rebuttable, thus, it must give way to evidence to the contrary.

257. Ecole De Cuisine Manille (Cordon Bleu of the Philippines), Inc. vs. Renaus

Cointreau & Cie and Le Cordon Bleu Int’l, B.V., G.R. No. 185830, June 5, 2013)

Under the Paris Convention to which the Philippines is a signatory, a trade name of a

national of a State that is a party to the Paris Convention, whether or not the trade name

forms part of a trademark, is protected without the obligation of filing or registration. It

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follows then that the applicant for registration of trademark is not the lawful owner

thereof and is not entitled to registration if the trademark has been in prior use by a

national of a country which is a signatory to the Paris Convention.

258. Societe Des Produits Nestle, S.A. vs. Court of Appeals and CFC Corporation,

G.R. No. 112012, April 4, 2001

The word MASTER, the dominant feature of the opposer’s mark, is neither generic nor

descriptive and as such, it cannot be invalidated as a trademark. When the term

“MASTER” has acquired a certain connotation to mean the coffee products MASTER

ROAST and MASTER BLEND produced by Nestle, the use by the CFC of the term

“MASTER” in the trademark for its coffee product FLAVOR MASTER is likely to cause

confusion or mistake or even deception of the ordinary purchasers.

259. Prosource International, Inc. vs. Horphag Research Management SA, G.R.

No. 180073, November 25, 2009

Both the words PYCNOGENOL and PCO-GENOLS have the same suffix “GENOL”

which appears to be merely descriptive and furnish no indication of the origin of the

article and hence, open for trademark registration by the plaintiff thru combination with

another word or phrase such as PYCNOGENOL. Although there were dissimilarities in

the trademark due to the type of letters used as well as the size, color and design

employed on their individual packages/bottles, still the close relationship of the

competing products’ name in sounds as they were pronounced, clearly indicates that

purchasers could be misled into believing that they are the same and/or originates from a

common source and manufacturer.

260. Sketchers USA vs. Inter Pacific Industrial Trading Corporation, GR No.

164321, March 28, 2011

The Dominancy Test focuses on the similarity of the prevalent or dominant features of

the competing trademarks that might cause confusion, mistake, and deception in the mind

of the purchasing public. Respondent’s use of the stylized “S” in its Strong rubber shoes

infringes on the mark of the petitioner as it is the dominant feature of the latter’s

trademark; the likelihood of confusion is present as purchasers may associate the

respondent’s product as connected with petitioner’s business.

261. Emerald Garment Manufacturing Corporation vs. Court of Appeals, G.R.

No. 100098, December 29, 1995

In applying the holistic test, petitioner’s trademark, “STYLISTIC MR. LEE,” which

pertains to jeans, should be considered as a whole. The test of fraudulent simulation is to

be found in the likelihood of the deception of some persons in some measure acquainted

with an established design and desirous of purchasing the commodity with which that

design has been associated. When the casual buyer is predisposed to be more cautious in

his purchase, as in this case where the products concerned are not inexpensive, the

likelihood of confusion is absent.

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262. Philip Morris, Inc. vs. Fortune Tobacco Corporation, G.R. No. 158589, June

27, 2006

The application of the holistic test entails a consideration of the entirety of the marks as

applied to the products, including the labels and packaging, in determining confusing

similarity. Although the perceived offending word “MARK” is itself prominent in

petitioner’s trademarks “MARK VII” and “MARK TEN,” the entire marking system

should be considered as a whole and not dissected, because a discerning eye would focus

not only on the predominant word but also on the other features appearing in the labels;

only then would such discerning observer draw his conclusion whether one mark would

be confusingly similar to the other and whether or not sufficient differences existed

between the marks.

263. Victorio Diaz vs. People of the Philippines, G.R. No. 180677, February 18,

2013

The gravamen of the offense of infringement of a registered trademark is the likelihood

of confusion. In applying the Holistic Test, confusion was remote because the jeans

made and sold by Levi’s Philippines were not only very popular but also quite expensive,

as opposed to Diaz’s tailored jeans which were acquired on a “made-to-order” basis;

moreover, since the jeans are expensive, the casual buyer is predisposed to be more

cautious and discriminating in and would prefer to mull over his purchase.

264. Taiwan Kolin Corp. v. Kolin Electronics Co., G.R. No. 209843, 25 March

2015

In trademark registration, while both competing marks refer to the word “KOLIN”

written in upper case letters and in bold font, but one is italicized and colored black while

the other is white in pantone red color background and there are differing features

between the two, registration of the said mark could be granted. It is hornbook doctrine

that emphasis should be on the similarity of the products involved and not on the

arbitrary classification or general description of their properties or characteristics. The

mere fact that one person has adopted and used a trademark on his goods would not,

without more, prevent the adoption and use of the same trademark by others on unrelated

articles of a different kind.

265. Mighty Corporation and La Campana Fabrica De Tabaco, Inc. vs. E. & J.

Gallo Winery and the Andresons Group, Inc., G.R. No. 154342, July 14, 2004

The Paris Convention for the Protection of Industrial Property does not automatically

exclude all countries of the world which have signed it from using a tradename which

happens to be used in one country. “GALLO” cannot be considered a “well-known” mark

within the contemplation and protection of the Paris Convention in this case since

GALLO wines and GALLO cigarettes are neither the same, identical, similar nor related

goods.

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266. Fredco Manufacturing Corporation vs. President and Fellows of Harvard

College, GR No. 185917, June 1, 2011

The essential requirement under the Paris Convention (and the Intellectual Property

Code) is that the trademark to be protected must be “well-known” in the country where

protection is sought and the power to determine whether a trademark is well-known lies

in the competent authority of the country of registration or use. “Harvard” is a well-

known name and mark not only in the United States but also internationally, including

the Philippines; as such, even before Harvard University applied for registration of the

mark “Harvard” in the Philippines, the mark was already protected under the Paris

Convention.

267. Del Monte Corporation and Philippine Packing Corporation vs. Court of

Appeals, G.R. No. L-78325, January 25, 1990

The question is not whether the two articles are distinguishable by their label when set

side by side but whether the general confusion made by the article upon the eye of the

casual purchaser who is unsuspicious and off his guard, is such as to likely result in his

confounding it with the original. It is not difficult to see that the Sunshine label is a

colorable imitation of the Del Monte trademark; the predominant colors used in the Del

Monte label are green and red-orange, the same with Sunshine; the word "catsup" in both

bottles is printed in white and the style of the print/letter is the same; and although the

logo of Sunshine is not a tomato, the figure nevertheless approximates that of a tomato.

268. Coffee Partners vs. San Francisco Coffee and Roastery, Inc., G.R. No. 169504,

3 March 2010

A trade name previously used in trade or commerce in the Philippines need not be

registered with the IPO before an infringement suit may be filed by its owner against the

owner of an infringing trademark. Nonetheless, respondent does not have the right to the

exclusive use of the geographic word “San Francisco” or the generic word “coffee.” It is

only the combination of the words “SAN FRANCISCO COFFEE,” which is respondent’s

trade name in its coffee business, that is protected against infringement on matters related

to the coffee business to avoid confusing or deceiving the public.

269. Ong vs. People of the Philippines, GR No. 169440, November 23, 2011

The trademark “Marlboro” is not only valid for being neither generic nor descriptive, it

was also exclusively owned by PMPI, as evidenced by the certificate of registration

issued by the Intellectual Property Office. Infringement of trademark clearly lies since

the counterfeit cigarettes not only bore PMPI’s trademark, but they were also packaged

almost exactly as PMPI’s products.

270. Republic Gas Corporation (REGASCO), et. al. vs. Petron Corporation, et. al.,

G.R. No. 194062, June 17, 2013

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The mere unauthorized use of a container bearing a registered trademark in connection

with the sale, distribution or advertising of goods or services which is likely to cause

confusion among the buyers or consumers can be considered as trademark infringement.

Petitioners’ act of refilling, without the respondents’ consent, the LPG containers bearing

the registered marks of the respondents will inevitably confuse the consuming public,

who may also be led to believe that the petitioners were authorized refillers and

distributors of respondent’s LPG products.

271. McDonald’s Corporation vs. L.C. Big Mak Burger, Inc., G.R. No. 143993,

August 18, 2004

The essential elements of an action for unfair competition are (1) confusing similarity in

the general appearance of the goods, and (2) intent to deceive the public and defraud a

competitor. The confusing similarity may or may not result from similarity in the marks,

but may result from other external factors in the packaging or presentation of the goods.

In this case, the intent to deceive and defraud may be inferred from the fact that there was

actually no notice (on their plastic wrappers) to the public that the “Big Mak” hamburgers

are products of “L.C. Big Mak Burger, Inc.”

272. Coca- Cola Bottlers Philippines, Inc. (CCBPI), Naga Plant vs. Quintin

Gomez, et, al., G.R. No. 154491, November 14, 2008

Hoarding does not relate to any patent, trademark, trade name or service mark that the

respondents have invaded, intruded into or used without proper authority from the

petitioner nor are the respondents alleged to be fraudulently “passing off” their products

or services as those of the petitioner. The respondents are not also alleged to be

undertaking any representation or misrepresentation that would confuse or tend to

confuse the goods of the petitioner with those of the respondents, or vice versa. What in

fact the petitioner alleges is an act foreign to the Code, to the concepts it embodies and to

the acts it regulates; as alleged, hoarding inflicts unfairness by seeking to limit the

opposition’s sales by depriving it of the bottles it can use for these sales

273. Manly Sportwear Manufacturing, Inc. vs. Dadodette Enterprises and/or

Hermes Sports Center, G.R. No. 165306, September 20, 2005

At most, the certificates of registration and deposit issued by the National Library and the

Supreme Court Library serve merely as a notice of recording and registration of the work

but do not confer any right or title upon the registered copyright owner or automatically

put his work under the protective mantle of the copyright law; it is not a conclusive proof

of copyright ownership. Hence, when there is sufficient proof that the copyrighted

products are not original creations but are readily available in the market under various

brands, as in this case, validity and originality will not be presumed.

Mercantile Law

274. Francisco Joaquin, Jr. vs. Franklin Drilon, et. al., G.R. No. 108946, January

28, 1999

The format or mechanics of a television show is not included in the list of protected

works in Sec. 2 of P.D. No. 49, which is substantially the same as Sec. 172 of the

Intellectual Property Code (R.A. No, 8293). For this reason, the protection afforded by

the law cannot be extended to cover them.

275. ABS-CBN Broadcasting Corporation vs. Philippine Multi-Media System,

Inc., G.R. Nos. 175769-70, January 19, 2009

Under Sec. 184.1 (h), the use made of a work by or under the direction or control of the

Government, by the National Library or by educational, scientific or professional

institutions where such use is in the public interest and is compatible with fair use will

not constitute copyright infringement. The carriage of ABS-CBN’s signals by virtue of

the must-carry rule is under the direction and control of the government through the NTC.

The imposition of the must-carry rule is within the NTC’s power to promulgate rules and

regulations, as public safety and interest may require, to encourage a larger and more

effective use of communications, radio and television broadcasting facilities, and to

maintain effective competition among private entities in these activities whenever the

Commission finds it reasonably feasible.

276. Pacita Habana, et. al. vs. Felicidad Robles and Goodwill Trading Co., Inc.,

G.R. No. 131522, July 19, 1999

To constitute infringement, it is not necessary that the whole or even a large portion of

the work shall have been copied; if so much is taken that the value of the original is

sensibly diminished, or the labors of the original author are substantially and to an

injurious extent appropriated by another, that is sufficient in point of law to constitute

piracy. The injury is sustained when respondent lifted from petitioners’ book materials

that were the result of the latter’s research work and compilation and misrepresented

them as her own, even circulating the book DEP for commercial use without

acknowledging petitioners as her source.

277. NBI-Microsoft Corporation vs. Judy Hwang, et. al., G.R. No. 147043, June 21,

2005

The gravamen of copyright infringement is not merely the unauthorized “manufacturing”

of intellectual works but rather the unauthorized performance of any of the rights

exclusively granted to the copyright owner. Hence, any person who performs any of such

acts without obtaining the copyright owner’s prior consent renders himself civilly and

criminally liable for copyright infringement.